UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER: 0-13368
FIRST MID-ILLINOIS BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 37-1103704
(State or other jurisdiction of (I.R.S. employer identification No.)
incorporation or organization)
1515 CHARLESTON AVENUE, MATTOON, ILLINOIS 61938
(Address and Zip Code of Principal Executive Offices)
(217) 234-7454
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $4.00 PER SHARE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 19, 1998, 1,978,400 common shares, $4.00 par value, were
outstanding, and the aggregate market value of common shares (based on the last
sale price of the Registrant's common shares on March 19, 1998) held by non-
affiliates was approximately $78,641,400.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT INTO FORM 10-K PART:
Portions of the Proxy Statement for 1998 Annual
Meeting of Shareholders to be held on May 20, 1998 III
<PAGE>
FIRST MID-ILLINOIS BANCSHARES, INC.
FORM 10-K TABLE OF CONTENTS
PAGE
PART I
Item 1 Business 3
Item 2 Properties 11
Item 3 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of Security Holders 14
PART II
Item 5 Market for Registrant's Common Shares and Related
Shareholder Matters 15
Item 6 Selected Financial Data 16
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 7A Quantitative and Qualitative Disclosures About
Market Risk 33
Item 8 Financial Statements and Supplementary Data 36
Item 9 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosures 58
PART III
Item 10 Directors and Executive Officers of the Registrant 58
Item 11 Executive Compensation 59
Item 12 Security Ownership of Certain Beneficial Owners and
Management 59
Item 13 Certain Relationships and Related Transactions 59
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 60
SIGNATURES 61
Exhibit Index 62
<PAGE>
PART I
ITEM 1. BUSINESS
REGISTRANT AND SUBSIDIARIES
First Mid-Illinois Bancshares, Inc. (the "Registrant") is a bank holding
company engaged in the business of banking through its wholly-owned subsidiary,
First Mid-Illinois Bank & Trust, N.A. ("First Mid Bank").
In addition to engaging in banking activities, the Registrant also engages in
certain other additional activities through Mid-Illinois Data Services, Inc., a
wholly-owned corporation organized on March 25, 1987, as a non-banking
subsidiary ("MIDS"). The primary business of MIDS is to provide financial data
processing services to the Registrant and First Mid Bank.
The Registrant, a Delaware corporation, was incorporated on September 8,
1981, pursuant to the approval of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") and became the holding company owning all
of the outstanding stock of First National Bank, Mattoon ("First National") on
June 1, 1982. The Registrant acquired all of the outstanding stock of a number
of community banks on the following dates: Mattoon Bank, Mattoon ("Mattoon
Bank") on April 2, 1984; State Bank of Sullivan ("Sullivan Bank") on April 1,
1985; Cumberland County National Bank in Neoga ("Cumberland County") on
December 31, 1985; First National Bank and Trust Company of Douglas County
("Douglas County") on December 31, 1986; and Charleston Community Bank
("Charleston Bank") on December 30, 1987. In April 1989, a purchase and
assumption agreement was executed between First National and Mattoon Bank
whereby First National purchased substantially all of the assets and assumed
all of the liabilities of Mattoon Bank. On May 31, 1992, the Registrant merged
Sullivan Bank, Cumberland County, Douglas County and Charleston Bank into First
National. First National changed its name at that time to First Mid-Illinois
Bank & Trust, N.A..
On July 1, 1992, the Registrant acquired and re-capitalized Heartland Federal
Savings and Loan Association ("Heartland"), a $125 million thrift headquartered
in Mattoon with offices in Charleston, Sullivan and Urbana, Illinois. Under
the terms of the acquisition, Heartland converted from the mutual form of
organization into a federally-chartered, stock savings association and became a
100%-owned subsidiary of the Registrant.
In connection with the Heartland acquisition, $3.1 million of Series A
perpetual, cumulative, non-voting, convertible, preferred stock was issued to
directors and certain senior officers of the Registrant pursuant to a private
placement. 620 shares of the preferred stock were sold at a stated value of
$5,000 per share with such shares bearing a dividend rate of 9.25%. The
preferred stock may be converted at any time, at the option of the preferred
stockholder, into common shares at the conversion ratio of 404.2 shares of
common stock for each share of preferred. The Registrant has the right at any
time after July 1, 1998, and upon giving at least thirty days prior notice, to
redeem all (but not less than all) of the preferred stock at a cash value of
$5,000 per share plus any accrued but unpaid dividends. The Registrant also
has the right at any time after July 1, 1998, and upon giving at least thirty
days prior notice to require the conversion of all (but not less than all) of
the preferred stock into common stock at the conversion ratio.
On October 4, 1994, First Mid Bank acquired all of the outstanding stock of
Downstate Bancshares, Inc. ("DBI") which owned 100% of the stock of Downstate
National Bank ("DNB"). DNB operated branch locations in Altamont and
Effingham, Illinois. Immediately following the acquisition, DBI was dissolved
and DNB was merged with and into First Mid Bank with First Mid Bank being the
surviving entity.
In December 1994, Heartland (formerly known as Heartland Federal Savings and
Loan Association) converted from a federally-chartered stock savings
association to a state-chartered savings bank and changed its name to Heartland
Savings Bank.
In March 1997, First Mid Bank acquired the Charleston, Illinois branch
location and the deposit base of First of America Bank. This cash acquisition
added approximately $28 million to total deposits, $.5 million to loans, $1.3
million to premises and equipment and $3.8 million to intangible assets.
In November 1997, Heartland merged with and into First Mid Bank with First
Mid Bank being the surviving entity.
DESCRIPTION OF BUSINESS
First Mid Bank conducts a general banking business embracing most of the
services, both consumer and commercial, which banks may lawfully provide,
including the following principal services: the acceptance of deposits to
demand, savings and time accounts and the servicing of such accounts;
commercial, industrial, agricultural, consumer and real estate lending,
including installment, credit card, personal lines of credit and overdraft
protection; safe deposit box operations; and an extensive variety of additional
services tailored to the needs of customers, such as traveler's checks and
cashiers' checks, foreign currency, and other special services. First Mid Bank
also provides services to its customers through its trust department and
investment center.
Loans, both commercial and consumer, are serviced on either a secured or
unsecured basis to corporations, partnerships and individuals. Commercial
lending covers such categories as business, industry, capital, construction,
agriculture, inventory and real estate, with the latter including residential
properties. First Mid Bank's installment loan department makes direct loans to
consumers and some commercial customers, and purchases retail obligations from
retailers, primarily without recourse.
First Mid Bank conducts its business in the middle of some of the richest
farmland in the world. Accordingly, First Mid Bank provides a wide range of
financial services to farmers and agribusiness within their respective markets.
The farm management department, headquartered in Mattoon, Illinois, has
approximately 33,000 acres under management and is the largest management
operation in the area, ranking in the top 100 firms nationwide. First Mid Bank
is the largest supplier of farm credit in the Registrant's market area with
$49.3 million in agriculture-related loans at December 31, 1997. The farm
credit products offered by First Mid Bank include not only real estate loans,
but machinery and equipment loans, production loans, inventory financing and
lines of credit.
The following chart sets forth (in thousands) the assets, deposits and
stockholders' equity of First Mid Bank (before intercompany eliminations) as of
December 31, 1997, and the average deposits for the year ended December 31,
1997:
STOCKHOLDERS' AVERAGE
ASSETS DEPOSITS EQUITY DEPOSITS
First Mid Bank $529,679 $458,962 $48,336 $444,774
EMPLOYEES
The Registrant, MIDS and First Mid Bank, collectively, employed 250 people on
a full-time equivalent basis as of December 31, 1997. The Registrant places a
high priority on staff development which involves extensive training, including
customer service training. New employees are selected on the basis of both
technical skills and customer service capabilities. None of the employees are
covered by a collective bargaining agreement with the Registrant. The
Registrant offers a variety of employee benefits and management considers its
employee relations to be excellent.
COMPETITION
The Registrant actively competes in all areas in which First Mid Bank
presently does business. First Mid Bank competes for commercial and individual
deposits, loans, and trust business with many east central Illinois banks,
savings and loan associations, and credit unions. The principal methods of
competition in the banking and financial services industry are quality of
services to customers, ease of access to facilities, and pricing of services,
including interest rates paid on deposits, interest rates charged on loans, and
fees charged for fiduciary and other banking services.
First Mid Bank operates facilities in the Illinois counties of Champaign,
Coles, Cumberland, Douglas, Effingham and Moultrie. Each facility primarily
serves the community in which it is located. First Mid Bank serves nine
different communities with 15 separate locations in the towns of Mattoon,
Charleston, Neoga, Tuscola, Sullivan, Arcola, Effingham, Altamont, and Urbana,
Illinois. Within the area of service there are numerous competing financial
institutions and financial services companies.
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively regulated
under federal and state law. As a result, the growth and earnings performance
of the Registrant can be affected not only by management decisions and general
economic conditions, but also by the requirements of applicable state and
federal statutes and regulations and the policies of various governmental
regulatory authorities including, but not limited to, the OCC, the Board of
Governors of the Federal Reserve System (the "FRB"), the FDIC, the Internal
Revenue Service and state taxing authorities and the Securities and Exchange
Commission (the "SEC"). The effect of such statutes, regulations and policies
can be significant, and cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Registrant and its subsidiaries, regulate, among
other things, the scope of business, investments, reserves against deposits,
capital levels relative to operations, the nature and amount of collateral for
loans, the establishment of branches, mergers, consolidations and dividends.
The system of supervision and regulation applicable to the Registrant and its
subsidiaries establishes a comprehensive framework for their respective
operations and is intended primarily for the protection of the FDIC's deposit
insurance funds and the depositors, rather than the shareholders, of financial
institutions.
The following references to material statutes and regulations affecting the
Registrant and its subsidiaries are brief summaries thereof and do not purport
to be complete, and are qualified in their entirety by reference to such
statutes and regulations. Any change in applicable law or regulations may have
a material effect on the business of the Registrant and its subsidiaries.
RECENT REGULATORY DEVELOPMENTS
PENDING LEGISLATION. Legislation is pending in the Congress that would allow
bank holding companies to engage in a wider range of nonbanking activities,
including greater authority to engage in securities and insurance activities.
The expanded powers generally would be available to a bank holding company only
if the bank holding company and its bank subsidiaries remain well-capitalized
and well-managed. Additionally, the pending legislation would eliminate the
federal thrift charter and merge the FDIC's Bank Insurance Fund ("BIF") and
Savings Association Insurance Fund ("SAIF"). At this time, the Registrant is
unable to predict whether the proposed legislation will be enacted and,
therefore, is unable to predict the impact such legislation may have on the
operations of the Registrant and First Mid Bank.
THE REGISTRANT
GENERAL. The Registrant, as the sole shareholder of First Mid Bank, is a
bank holding company. As a bank holding company, the Registrant is registered
with, and is subject to regulation by, the FRB under the Bank Holding Company
Act, ("BHCA"). In accordance with FRB policy, the Registrant is expected to
act as a source of financial strength to First Mid Bank and to commit resources
to support First Mid Bank in circumstances where the Registrant might not do so
absent such policy. Under the BHCA, the Registrant is subject to periodic
examination by the FRB and is required to file with the FRB periodic reports of
its operations and such additional information as the FRB may require.
INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company must
obtain FRB approval before: (i) acquiring, directly or indirectly, ownership
or control of any voting shares of another bank or bank holding company if,
after such acquisition, it would own or control more than 5% of such shares
(unless it already owns or controls the majority of such shares);
(ii) acquiring all or substantially all of the assets of another bank; or
(iii) merging or consolidating with another bank holding company. Subject to
certain conditions (including certain deposit concentration limits established
by the BHCA), the FRB may allow a bank holding company to acquire banks located
in any state of the United States without regard to whether the acquisition is
prohibited by the law of the state in which the target bank is located. In
approving interstate acquisitions, however, the FRB is required to give effect
to applicable state law limitations on the aggregate amount of deposits that
may be held by the acquiring bank holding company and its insured depository
institution affiliates in the state in which the target bank is located
(provided that those limits do not discriminate against out-of-state depository
institutions or their holding companies) or which require that the target bank
has been in existence for a minimum period of time (not to exceed five years)
before being acquired by an out-of-state bank holding company.
The BHCA also prohibits, with certain exceptions, the Registrant from
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank and from engaging in any business
other than that of banking, managing and controlling banks or furnishing
services to banks and their subsidiaries. The principal exception to this
prohibition allows bank holding companies to engage in, and to own shares of
companies engaged in, certain businesses found by the FRB to be "so closely
related to banking ... as to be a proper incident thereto." Under current
regulations of the FRB, the Registrant and its non-bank subsidiaries are
permitted to engage in, among other activities, such banking-related businesses
as the operation of a thrift, sales and consumer finance, equipment leasing,
the operation of a computer service bureau, including software development, and
mortgage banking and brokerage. The BHCA generally does not place territorial
restrictions on the domestic activities of non-bank subsidiaries of bank
holding companies.
Federal law also prohibits acquisition of "control" of a bank, such as First
Mid Bank, or bank holding company, such as the Registrant, without prior notice
to certain federal bank regulators. "Control" is defined in certain cases as
acquisition of 10% of the outstanding shares of a bank or bank holding
company.
CAPITAL REQUIREMENTS. Bank holding companies are required to maintain
minimum levels of capital in accordance with FRB capital adequacy guidelines.
If capital falls below minimum guideline levels, a bank holding company, among
other things, may be denied approval to acquire or establish additional banks
or non-bank businesses.
The FRB's capital guidelines establish the following minimum regulatory
capital requirements for bank holding companies: a risk-based requirement
expressed as a percentage of total risk-weighted assets, and a leverage
requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, at least one-half of which must be Tier 1 capital. The leverage
requirement consists of a minimum ratio of Tier 1 capital to total assets of 3%
for the most highly rated companies, with minimum requirements of 4% to 5% for
all others. For purposes of these capital standards, Tier 1 capital consists
primarily of permanent stockholders' equity less intangible assets (other than
certain mortgage servicing rights and purchased credit card relationships) and
total capital means Tier 1 capital plus certain other debt and equity
instruments which do not qualify as Tier 1 capital and a portion of the
Registrant's allowance for loan and lease losses.
The risk-based and leverage standards described above are minimum
requirements, and higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking organizations.
For example, the FRB's capital guidelines contemplate that additional capital
may be required to take adequate account of, among other things, interest rate
risk, or the risks posed by concentrations of credit, nontraditional activities
or securities trading activities. Further, any banking organization
experiencing or anticipating significant growth would be expected to maintain
capital ratios, including tangible capital positions (I.E., Tier 1 capital less
all intangible assets), well above the minimum levels.
As of December 31, 1997, the Registrant had regulatory capital, calculated on
a consolidated basis, in excess of the FRB's minimum requirements, with a risk-
based capital ratio of 12.20% and a leverage ratio of 7.05%.
DIVIDENDS. The FRB has issued a policy statement with regard to the payment
of cash dividends by bank holding companies. In the policy statement, the FRB
expressed its view that a bank holding company should not pay cash dividends
which exceed its net income or which can only be funded in ways that weaken the
bank holding company's financial health, such as by borrowing. Additionally,
the FRB possesses enforcement powers over bank holding companies and their
non-bank subsidiaries to prevent or remedy actions that represent unsafe or
unsound practices or violations of applicable statutes and regulations. Among
these powers is the ability to proscribe the payment of dividends by banks and
bank holding companies. In addition to the restrictions on dividends that may
be imposed by the FRB, the Delaware General Corporation Law (the "DGCL") allows
the Registrant to pay dividends only out of its surplus (as defined and
computed in accordance with the provisions of the DGCL), or if the Registrant
has no such surplus, out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year.
FEDERAL SECURITIES REGULATION. The Registrant's common stock is registered
with the SEC under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the
Registrant is subject to the information, proxy solicitation, insider trading
and other restrictions and requirements of the SEC under the Exchange Act.
FIRST MID BANK
GENERAL. First Mid Bank is a national bank, chartered by the OCC under the
National Bank Act. The deposit accounts of First Mid Bank are insured by the
BIF of the FDIC, and First Mid Bank is a member of the Federal Reserve System.
As a BIF-insured national bank, First Mid Bank is subject to the examination,
supervision, reporting and enforcement requirements of the OCC, as the
chartering authority for national banks, and the FDIC, as administrator of the
BIF.
DEPOSIT INSURANCE. As an FDIC-insured institution, First Mid Bank is
required to pay deposit insurance premium assessments to the FDIC. The FDIC
has adopted a risk-based assessment system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums based upon their respective levels of capital and results of
supervisory evaluations. Institutions classified as well-capitalized (as
defined by the FDIC) and considered healthy pay the lowest premium while
institutions that are less than adequately-capitalized (as defined by the FDIC)
and considered of substantial supervisory concern pay the highest premium.
Risk classification of all insured institutions is made by the FDIC for each
semi-annual assessment period.
During the year ended December 31, 1997, FDIC assessments ranged from 0% of
deposits to 0.27% of deposits. For the semi-annual assessment period beginning
January 1, 1998, FDIC assessment rates will continue to range from 0% of
deposits to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of the Registrant is not aware of any
activity or condition that could result in termination of the deposit insurance
of First Mid Bank.
FICO ASSESSMENTS. Since 1987, a portion of the deposit insurance assessments
paid by SAIF members has been used to cover interest payments due on the
outstanding obligations of the FICO, the entity created to finance the
recapitalization of the Federal Savings and Loan Insurance Corporation, the
SAIF's predecessor insurance fund. Pursuant to federal legislation enacted
September 30, 1996, commencing January 1, 1997, both SAIF members and BIF
members became subject to assessments to cover the interest payments on
outstanding FICO obligations. Such FICO assessments are in addition to amounts
assessed by the FDIC for deposit insurance. Until January 1, 2000, the FICO
assessments made against BIF members may not exceed 20% of the amount of the
FICO assessments made against SAIF members. Between January 1, 2000 and the
maturity of the outstanding FICO obligations in 2019, BIF members and SAIF
members will share the cost of the interest on the FICO bonds on a PRO RATA
basis. During the year ended December 31, 1997, the FICO assessment rate for
SAIF members was approximately 0.063% of deposits while the FICO assessment
rate for BIF members was approximately 0.013% of deposits. During the year
ended December 31, 1997, First Mid Bank paid FICO assessments totaling $82,100.
OCC ASSESSMENTS. All national banks are required to pay supervisory fees to
the OCC to fund the operations of the OCC. The amount of such supervisory fees
is based upon each institution's total assets, including consolidated
subsidiaries, as reported to the OCC. During the year ended December 31, 1997,
First Mid Bank paid supervisory fees to the OCC totaling $99,900.
CAPITAL REQUIREMENTS. The OCC has established the following minimum capital
standards for national banks, such as First Mid Bank: a leverage requirement
consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the
most highly-rated banks with minimum requirements of 4% to 5% for all others,
and a risk-based capital requirement consisting of a minimum ratio of total
capital to total risk-weighted assets of 8%, at least one-half of which must be
Tier 1 capital. For purposes of these capital standards, Tier 1 capital and
total capital consist of substantially the same components as Tier 1 capital
and total capital under the FRB's capital guidelines for bank holding companies
(SEE "--The Registrant--Capital Requirements").
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, the regulations of the
OCC provide that additional capital may be required to take adequate account
of, among other things, interest rate risk or the risks posed by concentrations
of credit, nontraditional activities or securities trading activities.
During the year ended December 31, 1997, First Mid Bank was not required by
the OCC to increase its capital to an amount in excess of the minimum
regulatory requirements. As of December 31, 1997, First Mid Bank exceeded its
minimum regulatory capital requirements with a leverage ratio of 7.59% and a
risk-based capital ratio of 13.17%.
Federal law provides the federal banking regulators with broad power to take
prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well-capitalized," "adequately-capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Depending upon the capital category to which an institution
is assigned, the regulators' corrective powers include: requiring the
submission of a capital restoration plan; placing limits on asset growth and
restrictions on activities; requiring the institution to issue additional
capital stock (including additional voting stock) or to be acquired;
restricting transactions with affiliates; restricting the interest rate the
institution may pay on deposits; ordering a new election of directors of the
institution; requiring that senior executive officers or directors be
dismissed; prohibiting the institution from accepting deposits from
correspondent banks; requiring the institution to divest certain subsidiaries;
prohibiting the payment of principal or interest on subordinated debt; and
ultimately, appointing a receiver for the institution.
DIVIDENDS. The National Bank Act imposes limitations on the amount of
dividends that may be paid by a national bank, such as First Mid Bank.
Generally, a national bank may pay dividends out of its undivided profits, in
such amounts and at such times as the bank's board of directors deems prudent.
Without prior OCC approval, however, a national bank may not pay dividends in
any calendar year which, in the aggregate, exceed the bank's year-to-date net
income plus the bank's adjusted retained net income for the two preceding
years.
The payment of dividends by any financial institution or its holding company
is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations, and a financial
institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized. As described
above, First Mid Bank exceeded its minimum capital requirements under
applicable guidelines as of December 31, 1997. As of December 31, 1997,
approximately $5.6 million was available to be paid as dividends to the
Registrant by First Mid Bank. Notwithstanding the availability of funds for
dividends, however, the OCC may prohibit the payment of any dividends by First
Mid Bank if the FRB determines such payment would constitute an unsafe or
unsound practice.
INSIDER TRANSACTIONS. First Mid Bank is subject to certain restrictions
imposed by the Federal Reserve Act on extensions of credit to the Registrant
and its subsidiaries, on investments in the stock or other securities of the
Registrant and its subsidiaries and the acceptance of the stock or other
securities of the Registrant or its subsidiaries as collateral for loans.
Certain limitations and reporting requirements are also placed on extensions of
credit by First Mid Bank to its directors and officers, to directors and
officers of the Registrant and its subsidiaries, to principal stockholders of
the Registrant, and to "related interests" of such directors, officers and
principal stockholders. In addition, federal law and regulations may affect
the terms upon which any person becoming a director or officer of the
Registrant or one of its subsidiaries or a principal stockholder of the
Registrant may obtain credit from banks with which First Mid Bank maintains a
correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. The federal banking agencies have adopted
guidelines which establish operational and managerial standards to promote the
safety and soundness of federally-insured depository institutions. The
guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and
earnings. In general, the guidelines prescribe the goals to be achieved in
each area, and each institution is responsible for establishing its own
procedures to achieve those goals. If an institution fails to comply with any
of the standards set forth in the guidelines, the institution's primary federal
regulator may require the institution to submit a plan for achieving and
maintaining compliance. The preamble to the guidelines states that the
agencies expect to require a compliance plan from an institution whose failure
to meet one or more of the guidelines is of such severity that it could
threaten the safety and soundness of the institution. Failure to submit an
acceptable plan, or failure to comply with a plan that has been accepted by the
appropriate federal regulator, would constitute grounds for further enforcement
action.
BRANCHING AUTHORITY. National banks headquartered in Illinois, such as First
Mid Bank, have the same branching rights in Illinois as banks chartered under
Illinois law. Illinois law grants Illinois-chartered banks the authority to
establish branches anywhere in the State of Illinois, subject to receipt of all
required regulatory approvals.
Effective June 1, 1997 (or earlier if expressly authorized by applicable
state law), the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal Act") allows banks to establish interstate branch
networks through acquisitions of other banks, subject to certain conditions,
including certain limitations on the aggregate amount of deposits that may be
held by the surviving bank and all of its insured depository institution
affiliates. The establishment of DE NOVO interstate branches or the
acquisition of individual branches of a bank in another state (rather than the
acquisition of an out-of-state bank in its entirety) is allowed by the Riegle-
Neal Act only if specifically authorized by state law. The legislation allows
individual states to "opt-out" of certain provisions of the Riegle-Neal Act by
enacting appropriate legislation prior to June 1, 1997. Illinois has enacted
legislation permitting interstate mergers beginning on June 1, 1997, subject to
certain conditions, including a prohibition against interstate mergers unless
any Illinois bank involved has been in existence and continuous operation for
more than five years.
FEDERAL RESERVE SYSTEM. FRB regulations, as presently in effect, require
depository institutions to maintain non-interest earning reserves against their
transaction accounts (primarily NOW and regular checking accounts), as follows:
for transaction accounts aggregating $47.8 million or less, the reserve
requirement is 3% of total transaction accounts; and for transaction accounts
aggregating in excess of $47.8 million, the reserve requirement is $1.434
million plus 10% of the aggregate amount of total transaction accounts in
excess of $47.8 million. The first $4.7 million of otherwise reservable
balances are exempted from the reserve requirements. These reserve
requirements are subject to annual adjustment by the FRB. First Mid Bank is in
compliance with the foregoing requirements.
ITEM 2. PROPERTIES
All of the following properties are owned by the Registrant or First Mid Bank
except those specifically identified as being leased.
FIRST MID BANK
MATTOON
First Mid Bank's main office is located at 1515 Charleston Avenue, Mattoon,
Illinois. The office building consists of a one-story structure which was
opened in 1965 with approximately 36,000 square feet of office space, eight
walk-in teller stations and a walk-up automated teller machine ("ATM").
Adjacent to this building is a parking lot with parking for approximately
seventy cars. A drive-up facility with ten drive-up lanes is located across
the street from First Mid Bank's main office. During 1997, First Mid Bank
began a remodeling project of its main office which will be completed in mid-
1998. Total costs associated with this project are expected to be
approximately $1.3 million.
First Mid Bank has a facility at 333 Broadway Avenue East, Mattoon, Illinois.
The one-story office building contains approximately 7,600 square feet of
office space. The main floor provides space for five teller windows, two
private offices, a safe deposit vault and four drive-up lanes. There is
adequate parking located adjacent to the building. A drive-up ATM is located
adjacent to the building.
First Mid Bank leases a facility at 1504-A Lakeland Boulevard, Mattoon,
Illinois which provides space for three tellers, two drive-up lanes and a walk-
up ATM.
First Mid Bank owns an office building located at 1701 Charleston Avenue,
Mattoon, Illinois and an adjacent parking lot. The building is used by MIDS
for its data processing center and back room operations for the Registrant and
First Mid Bank.
First Mid Bank owns a facility located at 1520 Charleston Avenue, Mattoon,
Illinois. The office building consists of a two-story structure which has
approximately 20,000 square feet of office space. A drive-up facility with
eight drive-up lanes and a drive-up ATM is located adjacent to the main office.
Adequate customer parking is available on two sides of the building and in an
adjacent parking lot. In conjunction with the merger of Heartland and First
Mid Bank, teller services are no longer offered at these locations.
SULLIVAN
First Mid Bank operates two locations in Sullivan, Illinois. The main office
is located at 200 South Hamilton Street, Sullivan, Illinois. Its office
building is a one-story structure containing approximately 11,400 square feet
of office space with five tellers, six private offices and four drive-up lanes.
Adjacent to its main office is a parking lot used primarily by the employees.
Adequate customer parking is available on two sides of the main office
building. The second office is a leased facility at 435 South Hamilton,
Sullivan, Illinois in the IGA. The facility has two teller stations, a vault,
an ATM and a night depository.
NEOGA
First Mid Bank's office in Neoga, Illinois, is located at 102 East 6th
Street, Neoga, Illinois. The building consists of a one-story structure
containing approximately 4,000 square feet of office space. The main office
building provides space for four tellers in the lobby of the building, two
drive-up tellers, four private offices, two night depositories, and an ATM.
Adequate customer parking is available on three sides of the main office
building. During 1996, an adjacent building with approximately 400 square feet
was purchased and is being held for future expansion.
TUSCOLA
First Mid Bank operates two offices in Tuscola, Illinois. The main office is
located at 100 North Main Street, Tuscola, Illinois. The building consists of
a two-story structure with approximately 18,000 square feet of office space
with space for six tellers, five private offices and a night depository.
Adequate customer parking is available at the main office building. The second
facility is located at 410 South Main Street, Tuscola, Illinois. The facility
has a walk-in teller station and two drive-up bay windows and contains
approximately 320 square feet of office space. A drive-up ATM is located
adjacent to this facility.
CHARLESTON
First Mid Bank has two offices in Charleston, Illinois. The main office is
located at 701 Sixth Street, Charleston, Illinois. It is a one-story facility
with an attached two-bay drive-up structure and consists of approximately 5,500
square feet of office space. Adequate parking is available to serve its
customers. The office space is comprised of three teller stations, seven
private offices and a night depository.
A second facility, acquired in March, 1997, is located at 500 West Lincoln
Avenue, Charleston, Illinois. This one-story facility contains approximately
8,400 square feet with four teller stations, four private offices and four
drive-up lanes. During 1996, land adjacent to this facility was purchased and
is being held for future expansion.
Three ATMs are located in Charleston. A drive-up ATM is located in the
parking lot of the facility at 500 West Lincoln Avenue and in the parking lot
of Save-A-Lot at 1400 East Lincoln Avenue. The third is an off-site ATM
located in the student union at Eastern Illinois University.
In January, 1998, First Mid Bank sold a facility located at 580 West Lincoln
Avenue, Charleston, Illinois.
ALTAMONT
First Mid Bank has a banking facility located at 101 West Washington Street,
Altamont, Illinois. This building is a one-story structure which has
approximately 4,300 square feet of office space. The office space consists of
nine teller windows, three drive-up teller lanes (one of which facilitates an
ATM), seven private offices, one conference room and a night depository.
Adequate parking is available on three sides of the building.
EFFINGHAM
First Mid Bank operates a facility at 902 North Keller Drive, Effingham,
Illinois. The building is a two-story structure with approximately 4,000
square feet of office space. This office space consists of four teller
stations, three drive-up teller lanes, five private offices and a night
depository. Adequate parking is available to customers in front of the
facility.
First Mid Bank also owns property at 900 North Keller Drive, Effingham,
Illinois which provides additional customer parking along with a drive-up ATM.
ARCOLA
First Mid Bank leases a facility at 324 South Chestnut Street, Arcola,
Illinois. This building is a one-story structure with approximately 1,140
square feet of office space. This office space consists of two lobby teller
stations, one loan station, two drive-up teller lanes, one private office and a
night depository. A drive-up ATM lane is available adjacent to the teller
lanes. Adequate parking is available to customers in front of the facility.
URBANA
First Mid Bank owns a facility located at 601 South Vine Street, Urbana,
Illinois. Its office building consists of a one-story structure and contains
approximately 3,600 square feet. The office building provides space for three
tellers, two private offices and two drive-up lanes. An adequate customer
parking lot is located on the south side of the building.
REGISTRANT
The Registrant owns a single family residence at 1515 Wabash Avenue, Mattoon,
Illinois which is being held for future expansion.
ITEM 3. LEGAL PROCEEDINGS
Since First Mid Bank acts as depositories of funds, it is named from time to
time as a defendant in law suits (such as garnishment proceedings) involving
claims to the ownership of funds in particular accounts. Management believes
that all such litigation as well as other pending legal proceedings constitute
ordinary routine litigation incidental to the business of First Mid Bank and
that such litigation will not materially adversely affect the Registrant's
consolidated financial condition.
In addition to the normal legal proceedings referred to above, Heartland, a
subsidiary of the Registrant that merged with First Mid Bank during 1997, filed
a complaint on December 5, 1995, against the U.S. Government which is now
pending in the U.S. Court of Federal Claims in Washington D.C. This complaint
relates to Heartland's interest as successor to Mattoon Federal Savings and
Loan Association which incurred a significant amount of supervisory goodwill
when it acquired Urbana Federal Savings and Loan in 1982. The complaint
alleges that the Government breached its contractual obligations when, in 1989,
it issued new rules which eliminated supervisory goodwill from inclusion in
regulatory capital. At this time, it is too early to tell whether First Mid
Bank will ultimately prevail in the suit and if so, what damages may be
recovered.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS
The Registrant's common stock was held by approximately 734 shareholders of
record as of December 31, 1997, and is traded in the over-the-counter market.
The following table shows, for the indicated periods, the range of reported
prices per share of the Registrant's common stock in the over-the-counter
market. These quotations represent inter-dealer prices without retail mark-ups,
mark-downs or commissions and do not necessarily represent actual transactions.
QUARTER HIGH LOW
1997
4th $ 37 $ 25 1/2
3rd 26 1/2 22 1/2
2nd 22 1/2 20 1/2
1st 21 1/4 20
1996
4th $ 19 1/2 $ 20 1/2
3rd 19 20
2nd 18 1/2 18 1/2
1st 17 1/2 17 1/2
The following table sets forth the cash dividends per share on the
Registrant's common stock for the last two years.
DIVIDEND
DATE DECLARED DATE PAID PER SHARE
5-15-1996 6-20-1996 $.19
12-16-1996 1- 3-1997 $.23 1/2
5-21-1997 6-20-1997 $.20
12-16-1997 1- 2-1998 $.26
Effective May 22, 1997, the Registrant had a two-for-one stock split in the
form of a 100% stock dividend. All share and per share information has been
restated to reflect the split.
The Registrant's shareholders are entitled to receive such dividends as are
declared by the board of directors, which considers payment of dividends
semiannually. The ability of the Registrant to pay dividends, as well as fund
its operations, is dependent upon receipt of dividends from First Mid Bank.
Regulatory authorities limit the amount of dividends which can be paid by First
Mid Bank without prior approval from such authorities. For further discussion
of First Mid Bank's dividend restrictions and capital requirements, see "Note
17" of the Notes to the Consolidated Financial Statements included under Item 8
of this document. Cash dividends have been declared by the Board of Directors
of the Registrant semi-annually during the two years ended December 31, 1997.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth a five-year comparison of selected financial data.
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income $37,805 $35,559 $33,465 $26,428 $25,510
Interest expense 19,131 17,805 16,725 11,918 11,935
Net interest income 18,674 17,754 16,740 14,510 13,575
Provision for loan losses 700 147 280 168 492
Other income 5,421 4,799 4,009 3,805 3,928
Other expense 16,039 15,977 14,715 13,263 12,713
Income before income taxes
and cumulative effect of
change in accounting principle 7,356 6,429 5,754 4,884 4,298
Income tax expense 2,630 2,263 1,830 1,450 1,150
Net income before cumulative
effect of change in
accounting principle 4,726 4,166 3,924 3,434 3,148
Cumulative effect of change
in accounting principle - - - - 155
Net income $ 4,726 $ 4,166 $ 3,924 $ 3,434 $ 3,303
PER COMMON SHARE DATA
Basic earnings per share
before cumulative effect of
change in accounting principle $ 2.30 $ 2.11 $ 2.05 $ 1.79 $ 1.63
Basic earnings per share 2.30 2.11 2.05 1.79 1.72
Diluted earnings per share
before cumulative effect of
change in accounting principle 2.17 1.99 1.94 1.71 1.57
Diluted earnings per share 2.17 1.99 1.94 1.71 1.65
Dividends per common share .46 .43 .41 .38 .38
Book value per common share 21.55 19.56 18.04 15.69 15.45
FINANCIAL RATIOS
Net interest margin (TE) 3.96% 3.98% 3.98% 3.93% 3.85%
Return on average assets .90 .85 .84 .84 .85
Return on average equity 11.08 11.03 11.76 11.35 11.80
Return on average common equity 11.23 11.18 12.02 11.59 12.12
Dividend payout ratio 19.99 20.16 19.76 20.89 21.40
Average total equity to average assets 8.11 7.69 7.17 7.38 7.17
Total capital to risk-weighted assets 12.20 11.80 11.51 10.69 13.10
YEAR END BALANCES
Total assets $532,978 $515,397 $472,494 $451,158 $397,609
Net loans 355,587 345,533 304,190 279,545 221,109
Total deposits 457,598 413,676 396,879 389,568 349,058
Total equity 45,576 39,904 35,309 30,600 30,184
AVERAGE BALANCES
Total assets $525,751 $491,058 $465,287 $409,684 $390,252
Net loans 352,495 323,540 294,220 243,166 214,408
Total deposits 443,399 405,223 395,580 356,833 344,226
Total equity 42,638 37,783 33,371 30,268 27,987
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis is intended to provide a better
understanding of the consolidated financial condition and results of operations
of the Registrant and its subsidiaries for the years ended December 31, 1997,
1996 and 1995. This discussion and analysis should be read in conjunction with
the consolidated financial statements, related notes and selected financial data
appearing elsewhere in this report.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Registrant intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Registrant, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Registrant's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Registrant and the subsidiaries include,
but are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Registrant's market area and accounting principles, policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Registrant and its business, including additional
factors that could materially affect the Registrant's financial results, is
included in the Registrant's filings with the Securities and Exchange
Commission.
OVERVIEW
In 1997, the Registrant achieved record net income and earnings per share.
For the year, net income was $4,726,000 up 13.4% from $4,166,000 in 1996. In
1996, net income increased 6.2% from $3,924,000 in 1995. Diluted earnings per
share was $2.17 in 1997 compared with $1.99 in 1996 and $1.94 in 1995. A
summary of the factors which contributed to the changes in net income follows
(in thousands):
TABLE 1 EFFECT ON EARNINGS
1997 1996
VS VS
1996 1995
Net interest income $ 920 $ 1,014
Provision for loan losses (553) 133
Other income, including securities transactions 622 790
Other expenses, excluding SAIF assessment (813) (511)
One-time SAIF assessment 751 (751)
Income taxes (367) (433)
Increase in net income $ 560 $ 242
On March 7, 1997, the Registrant acquired the Charleston, Illinois branch
location and the deposit base of First of America Bank. This cash acquisition
added approximately $28 million to total deposits, $500,000 to loans, $1.3
million to premises and equipment and $3.8 million to intangible assets. The
acquisition of the branch was accounted for using the purchase method of
accounting whereby the acquired assets and deposits of the branch were recorded
at their fair values as of the acquisition date. The operating results have
been combined with those of the Registrant since March 7, 1997.
RESULTS OF OPERATIONS
NET INTEREST INCOME
The largest source of operating revenue for the Registrant is net interest
income. Net interest income represents the difference between total interest
income earned on earning assets and total interest expense paid on interest-
bearing liabilities. The amount of interest income is dependent upon many
factors including the volume and mix of earning assets, the general level of
interest rates and the dynamics of changes in interest rates. The cost of
funds necessary to support earning assets varies with the volume and mix of
interest-bearing liabilities and the rates paid to attract and retain such
funds.
For purposes of the following discussion and analysis, the interest earned on
tax-exempt securities is adjusted to an amount comparable to interest subject to
normal income taxes. The adjustment is referred to as the tax-equivalent ("TE")
adjustment. The Registrant's average balances, interest income and expense and
rates earned or paid for major balance sheet categories are set forth in the
following table (dollars in thousands):
TABLE 2 DISTRIBUTION OF CONSOLIDATED ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY - INTEREST, RATES AND NET YIELDS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits $ 1,497 $ 75 5.01% $ 1,165 $ 55 4.72% $ 1,511 $ 84 5.56%
Federal funds sold 4,254 230 5.41% 3,403 180 5.29 6,199 356 5.74
Investment securities
Taxable 107,124 6,759 6.31% 111,739 6,868 6.15 115,824 7,078 6.11
Tax-exempt<F1> 13,046 1,062 8.14% 11,442 953 8.33 12,831 1,111 8.66
Loans <F2><F3> 355,167 30,040 8.46% 326,302 27,827 8.53 294,220 25,214 8.57
Total earning assets 481,088 38,166 7.93% 454,051 35,883 7.90 430,585 33,843 7.86
Cash and due from banks 18,363 17,051 15,382
Premises and equipment 11,916 9,864 9,333
Other assets 17,056 12,854 12,699
Allowance for loan losses (2,672) (2,762) (2,711)
Total assets $525,751 $491,058 $465,288
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Deposits
Demand deposits $125,666 3,684 2.93% $110,708 $ 3,085 2.79% $106,118 $ 2,823 2.66%
Savings deposits 38,642 999 2.59% 39,364 1,069 2.72 40,920 1,107 2.71
Time deposits 226,431 12,464 5.50% 204,362 11,156 5.46 202,305 10,958 5.42
Securities sold under
agreements to repurchase 10,806 488 4.52% 12,411 574 4.62 16,481 777 4.71
FHLB advances 17,221 1,018 5.91% 23,920 1,405 5.87 7,633 487 6.39
Federal funds purchased 502 26 5.18% 800 44 5.50 26 2 7.69
Long-term debt 6,584 452 6.87% 6,819 472 6.92 7,636 571 7.48
Total interest-bearing
liabilities 425,852 19,131 4.49% 398,384 17,805 4.47 381,119 16,725 4.39
Demand deposits 52,660 50,789 46,237
Other liabilities 4,601 4,102 4,561
Stockholders' equity 42,638 37,783 33,371
Total liabilities/equity $525,751 $491,058 $465,288
Net interest income (TE) $ 19,035 $ 18,078 $ 17,118
Net interest spread 3.44% 3.43% 3.47%
Impact of non-interest
bearing funds .52% .55% .51%
Net yield on interest-
earnings assets (TE) 3.96% 3.98% 3.98%
<FN>
<F1>Interest income and rates are presented on a tax-equivalent basis ("TE") assuming a federal income tax
rate of 34%.
<F2>Loan fees are included in interest income and are not material.
<F3>Nonaccrual loans have been included in the average balances.
</FN>
</TABLE>
Changes in net interest income may also be analyzed by segregating the volume
and rate components of interest income and interest expense. The following
table summarizes the approximate relative contribution of changes in average
volume and interest rates to changes in net interest income (TE) for the past
two years (in thousands):
TABLE 3 ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
<TABLE>
<CAPTION>
1997 COMPARED TO 1996 1996 COMPARED TO 1995
INCREASE - (DECREASE) INCREASE - (DECREASE)
TOTAL RATE/ TOTAL RATE/
CHANGE VOLUME RATE VOLUME<F4> CHANGE VOLUME RATE VOLUME<F4>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Interest-bearing deposits $ 20 $ 16 $ 3 $ 1 $ (29) $ (20) $ (11) $ 2
Federal funds sold 50 45 4 1 (176) (161) (28) 13
Investment securities:
Taxable (109) (281) 181 (9) (210) (248) 38 -
Tax-exempt <F1> 109 133 (21) (3) (158) (120) (42) 4
Loans <F2><F3> 2,213 2,460 (228) (19) 2,613 2,749 (123) (13)
Total interest income 2,283 2,373 (61) (29) 2,040 2,200 (166) 6
Interest-Bearing
Liabilities
Interest-bearing deposits
Demand deposits 599 417 160 22 262 122 134 6
Savings deposits (70) (20) (51) 1 (38) (42) 4 -
Time deposits 1,308 1,205 93 10 198 111 86 1
Securities sold under
agreements to repurchase (86) (74) (14) 2 (203) (192) (14) 3
FHLB advances (387) (393) 9 (3) 918 1,042 (39) (85)
Federal funds purchased (18) (17) (2) 1 42 60 (1) (17)
Long-term debt (20) (16) (4) - (99) (61) (43) 5
Total interest expense 1,326 1,102 191 33 1,080 1,040 127 (87)
Net interest income $ 957 $1,271 $(252) $ (62) $ 960 $1,160 $ (293) $ 93
<FN>
<F1>Interest income and rates are presented on a tax-equivalent basis, assuming a federal income
tax rate of 34%.
<F2>Loan fees are included in interest income and are not material.
<F3>Nonaccrual loans are not material and have been included in the average balances.
<F4>The changes in rate/volume are computed on a consistent basis by multiplying the change
in rates with the change in volume.
</FN>
</TABLE>
On a tax equivalent basis, net interest income increased $957,000, or 5.3% in
1997, compared to an increase of $960,000, or 5.6% in 1996. As set forth in
Table 3, the improvement in net interest income in 1997 was due primarily to the
increases in the volume of earning assets and interest-bearing liabilities. In
1996, the increase in net interest income was due to the increase in the volume
of earning assets and interest-bearing liabilities, partially offset by the
effect of changes in interest rates. To a lesser extent, changes in interest
rates in 1995 also contributed to the growth in net interest income.
In 1997, average earning assets increased by $27,037,000, or 6.0%, and average
interest-bearing liabilities increased $27,468,000, or 6.9%, compared with 1996
(Table 2). The higher volumes of earning assets and interest-bearings
liabilities were primarily the result of strong loan growth in 1997 and the
acquisition of a branch facility in Charleston, Illinois. As a percentage of
average earning assets, average loans increased from 68.3% in 1995 to 71.9% in
1996 to 73.8% in 1997 while average securities decreased from 29.9% in 1995 to
27.1% in 1996 to 25.0% in 1997.
Net interest margin remained constant at 3.98% in 1996 and 1995 and decreased
slightly to 3.96% in 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses in 1997 was $700,000 compared to $147,000 in
1996 and $280,000 in 1995. For information on loan loss experience and
nonperforming loans, see the "Nonperforming Loans" and "Loan Quality and
Allowance for Loan Losses" sections later in this document.
OTHER INCOME
An important source of the Registrant's revenue is derived from other income.
The following table sets forth the major components of other income for the last
three years (in thousands):
TABLE 4 OTHER INCOME
$ CHANGE
FROM PRIOR YEAR
1997 1996 1995 1997 1996
Trust $ 1,663 $ 1,293 $ 1,118 $ 370 $ 175
Brokerage 464 386 183 78 203
Securities losses (6) (9) - 3 (9)
Service charges 1,804 1,728 1,574 76 154
Mortgage banking 491 428 273 63 155
Other 1,005 973 861 32 112
Total other income $ 5,421 $ 4,799 $ 4,009 $ 622 $ 790
The Registrant's other income increased to $5,421,000 in 1997 as compared to
$4,799,000 in 1996 and $4,009,000 in 1995.
Trust revenues increased 28.6% to $1,663,000 in 1997 from $1,293,000 in 1996
and $1,118,000 in 1995. Trust assets increased 46.5% to $326,935,000 at
December 31, 1997 from $223,117,000 at December 31, 1996 and $215,903,000 at
December 31, 1995. During 1997, increased revenues were primarily due to an
increase in fees generated on retirement plans under management and the increase
in trust assets. The increase in trust assets was approximately $40 million in
growth of the trust accounts under management and approximately a $70 million
market value adjustment upward for the agricultural-related properties.
Revenues from brokerage and annuity sales continued to increase in 1997 as the
Registrant expanded its product line by offering full-service brokerage services
and increasing its marketing efforts in this area.
Net securities losses in 1997 were $6,000 compared to $9,000 in 1996 and $0 in
1995.
Service charges amounted to $1,804,000 in 1997 as compared to $1,728,000 in
1996 and $1,574,000 in 1995. The increase of $76,000 (4.4%) in service charges
in 1997 as compared to 1996 was primarily due to an increase in the number of
savings and transaction accounts and the volume associated with these accounts.
First Mid Bank originates residential real estate loans for its own portfolio
and for sale to others. Mortgage banking income from loans originated and
subsequently sold into the secondary market amounted to $491,000 in 1997 as
compared to $428,000 in 1996 and $273,000 in 1995. This increase in 1997 was
attributed to the volume of loans sold by First Mid Bank increasing to $29
million (representing 476 loans) from $21 million in 1996 (representing 339
loans). Included in mortgage banking income was the amount of the mortgage
servicing fees recorded on loans originated and sold into the secondary market
with servicing retained. This amount was $103,000 in 1997 and $196,000 in 1996.
This decline in mortgage banking income was partially due to an increase in
loans sold on a servicing-released basis. During 1997, 160 loans (with a
balance of $13.6 million) were sold with servicing released, thus no mortgage
servicing income was recorded.
OTHER EXPENSE
The major categories of other expense include salaries and employee benefits,
occupancy and equipment expenses and other operating expenses associated with
day-to-day operations. The following table sets forth the major components of
other expense for the last three years (in thousands):
TABLE 5 OTHER EXPENSE
$ CHANGE
FROM PRIOR YEAR
1997 1996 1995 1997 1996
Salaries and benefits $ 7,922 $ 7,938 $ 7,484 $ (16) $ 454
Occupancy and equipment 2,782 2,345 2,298 437 47
FDIC premiums 40 275 590 (235) (315)
One-time SAIF assessment - 751 - (751) 751
Amortization of intangibles 709 547 608 162 (61)
Stationery and supplies 692 559 449 133 110
Legal and professional fees 890 795 699 95 96
Marketing and promotion 529 579 500 (50) 79
Other operating expenses 2,475 2,188 2,087 287 101
Total other expense $16,039 $15,977 $14,715 $ 62 $ 1,262
The Registrant's non-interest expense amounted to $16,039,000 in 1997 as
compared to $15,977,000 in 1996 and $14,715,000 in 1995.
Salaries and employee benefits, the largest component of other expense,
decreased slightly in 1997. At December 31, 1997, the number of full-time
equivalent ("FTE") employees totaled 250 compared to 257 and 254 at December 31,
1996 and 1995, respectively.
Occupancy and equipment expense increased 18.6% to $2,782,000 in 1997 as
compared to $2,345,000 in 1996. This increase was primarily due to the increase
in depreciation expense recorded on technology equipment put into service at the
beginning of 1997. This included items relating to document imaging, report
imaging, home banking and wide-area network projects.
The net amount of insurance premiums assessed by the Federal Deposit Insurance
Corporation ("FDIC") in 1997 includes a refund of $69,000 on the 1996
assessments of the Savings Association Insurance Fund ("SAIF"). During 1996,
the Registrant recorded a premium expense of $275,000 and $590,000 in 1995. A
lower premium rate went into effect beginning in 1997 that helped to reduce
overall deposit insurance.
In 1996, the Registrant paid a one-time assessment of $751,000 to re-
capitalize the SAIF. Legislation to re-capitalize the SAIF was signed into law
by the President on September 30, 1996, and the assessment was paid by the
Registrant in December 1996.
Amortization of intangible assets increased 29.6% when comparing 1997 to 1996.
This increase was due to the goodwill and core deposit intangible associated
with the purchase of the Charleston branch in 1997. The decrease between 1995
and 1996 was the result of the Registrant's purchase mortgage servicing rights
from the Heartland acquisition being fully amortized in 1995.
Other operating expenses increased $287,000 or 13.1% to $2,475,000 in 1997
from $2,188,000 in 1996. This increase was due to the accrual in 1997 of a loss
of $106,000 on the January, 1998, sale of property located in Charleston,
Illinois, as well as losses on the sale of other real estate owned and
repossessed assets.
INCOME TAXES
Total income tax expense amounted to $2,630,000 in 1997 as compared to
$2,263,000 in 1996 and $1,830,000 in 1995. Effective tax rates were 35.8%,
35.2% and 31.8% respectively, for 1997, 1996 and 1995. The effective tax rate
increase was primarily due to an increase in state income taxes.
THE YEAR 2000 ISSUE
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000. The
Year 2000 issue affects virtually all companies and organizations.
The Registrant has considered the impact of the Year 2000 issue for its
computer systems and applications as well as its general operations, customers
and suppliers. The Registrant has developed a stratigic plan for Year 2000
compliance which is being administered by a committee with representation from
all functional areas of the company as well as extensive involvement and
oversite by the board of directors and senior management. The plan follows the
guidelines set forth by the Federal Financial Institutions Examinations Council
("FFIEC"). The Registrant plans to complete its assessment phase, identifying
hardware, software, networks, other processing platforms and customer and vendor
interdependency affected by the Year 2000 date change, by March 31, 1998. The
plan calls for all mission critical items to be Year 2000 compliant by year-end
1998. Additionally, alarms, elevators, heating and cooling systems, and other
computer-controlled mechanical devices on which the Registrant relies are being
evaluated. Those found not to be in compliance will be modified or replaced
with a compliant product. While there will be some expenses incurred during the
next two years, the Registrant has not identified any situations at this time
that will require material cost expenditures to become fully compliant. An
unknown element at this time is the impact of the Year 2000 on the Registrant's
borrowing customers and their ability to repay. The Registrant has initiated a
program to communicate with key bank customers to ensure they are properly
prepared for the Year 2000 and will not suffer serious adverse consequences.
ANALYSIS OF BALANCE SHEETS
SECURITIES
The Registrant's overall investment goal is to maximize earnings while
maintaining liquidity in securities having minimal credit risk. The types and
maturities of securities purchased are primarily based on the Registrant's
current and projected liquidity and interest rate sensitivity positions. The
following table sets forth the year-end amortized cost of the securities for the
last three years (in thousands):
TABLE 6 INVESTMENT PORTFOLIO
DECEMBER 31,
1997 1996 1995
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 80,509 67% $ 86,518 74% $ 72,599 59%
Obligations of states and
political subdivisions 12,820 11 11,398 10 12,009 10
Mortgage-backed securities 23,272 20 15,283 13 35,766 29
Other securities 2,747 2 4,384 3 2,204 2
Total securities $119,348 100% $117,583 100% $122,578 100%
At December 31, 1997, the Registrant's investment portfolio showed an increase
in mortgage-backed securities and a decrease in U.S. Government agency
securities. This change in the portfolio mix improved the repricing
characteristics of the portfolio, helped mollify the Registrant's exposure
relating to interest rate risk and improved the portfolio yield.
The following table indicates the expected maturities of investment securities
classified as available-for-sale and held-to-maturity, presented at amortized
cost, at December 31, 1997 (dollars in thousands) and the weighted average yield
for each range of maturities. Mortgage-backed securities are aged according to
their weighted average life. All other securities are shown at their
contractual maturity.
TABLE 7 INVESTMENT MATURITY SCHEDULE
ONE AFTER 1 AFTER 5 AFTER
YEAR THROUGH THROUGH TEN
OR LESS 5 YEARS 10 YEARS YEARS TOTAL
Available-for-sale:
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $10,754 $46,701 $22,557 $ 497 $ 80,509
Obligations of state and
political subdivisions 2,132 3,112 1,039 3,517 9,800
Mortgage-backed securities 1,372 9,676 4,172 8,052 23,272
Other securities - - - 2,747 2,747
Total Investments $14,258 $59,489 $27,768 $14,813 $116,328
Weighted average yield 5.72% 6.34% 6.45% 6.27% 6.28%
Full tax-equivalent yield 6.10% 6.51% 6.56% 7.06% 6.54%
Held-to-maturity:
Obligations of state and
political subdivisions $ 457 $ 1,838 $ 280 $ 445 $ 3,020
Weighted average yield 4.85% 5.10% 5.70% 5.74% 5.21%
Full tax-equivalent yield 7.35% 7.73% 8.64% 8.71% 7.90%
The weighted average yields are calculated on the basis of the cost and
effective yields weighted for the scheduled maturity of each security. Full
tax-equivalent yields have been calculated using a 34% tax rate.
The maturities of, and yields on, mortgage-backed securities have been
calculated using actual repayment history. However, where securities have call
features, and have a market value in excess of par value, the call date has been
used to determine the expected maturity.
With the exception of obligations of the U.S. Treasury and other U.S.
Government agencies and corporations, there were no investment securities of any
single issuer the book value of which exceeded 10% of stockholders' equity at
December 31, 1997.
In December 1995, the Registrant reclassified certain investment securities
between held-to-maturity and available-for-sale in accordance with guidelines
issued by the Financial Accounting Standards Board permitting a one-time change
in classification. Based on discussion and analysis, the Registrant decided
that only local, non-rated municipal securities would be classified as held-to-
maturity and the remaining portfolio would be designated as available-for-sale.
The book value and gross unrealized loss of securities transferred from held-to-
maturity to available-for-sale amounted to $52,536,000 and $445,000,
respectively.
LOANS
The loan portfolio (net of unearned discount) is the largest category of the
Registrant's earning assets. The following table summarizes the composition of
the loan portfolio for the last five years (in thousands):
TABLE 8 COMPOSITION OF LOANS
1997 1996 1995 1994 1993
Commercial, financial
and agricultural $ 73,854 $ 75,028 $ 65,916 $ 61,520 $ 50,353
Real estate - mortgage 252,312 241,240 211,147 195,524 151,916
Installment 29,266 30,423 27,996 22,294 16,360
Other 2,791 1,526 1,945 2,815 4,590
Total loans $358,223 $348,217 $307,004 $282,153 $223,219
At December 31, 1997, the Registrant had loan concentrations in agricultural
industries of 13.8% of outstanding loans and 13.3% at December 31, 1996. The
Registrant had no further industry loan concentrations in excess of 10% of
outstanding loans.
TABLE 9 LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY
The following table presents the balance of loans outstanding as of December
31, 1997, by maturities (dollars in thousands):
<TABLE>
<CAPTION>
MATURITY <F1>
OVER 1
ONE YEAR THROUGH OVER
OR LESS<F2> 5 YEARS 5 YEARS TOTAL
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 53,631 $ 18,526 $ 1,697 $ 73,854
Real estate - mortgage 46,356 136,463 69,493 252,312
Installment 6,344 22,075 847 29,266
Other 417 1,984 390 2,791
Total loans $106,748 $179,048 $ 72,427 $358,223
<FN>
<F1>Based on scheduled principal repayments.
<F2>Includes demand loans, past due loans and overdrafts.
</FN>
</TABLE>
As of December 31, 1997, loans with maturities over one year consisted of
$208,662,000 in fixed rate loans and $42,813,000 in variable rate loans. The
loan maturities noted above are based on the contractual provisions of the
individual loans. The Registrant has no general policy regarding rollovers and
borrower requests, which are handled on a case-by-case basis.
NONPERFORMING LOANS
Nonperforming loans include: (a) loans accounted for on a nonaccrual basis;
(b) accruing loans contractually past due ninety days or more as to interest or
principal payments; and loans not included in (a) and (b) above which are
defined as "troubled debt restructurings".
The following table presents information concerning the aggregate amount of
nonperforming loans (in thousands):
TABLE 10 NONPERFORMING LOANS
December 31,
1997 1996 1995 1994 1993
Nonaccrual loans $1,194 $ 790 $ 636 $ 393 $ 497
Loans past due ninety days
or more and still accruing 145 575 554 509 248
Restructured loans which are
performing in accordance
with revised terms 346 580 604 772 307
Interest income that would have been reported if nonaccrual and restructured
loans had been performing totaled $162,000, $143,000 and $143,000 for the years
ended December 31, 1997, 1996 and 1995, respectively. Interest income that was
included in income totaled $32,000, $39,000 and $56,000 for the same periods.
The Registrant's policy generally is to discontinue the accrual of interest
income on any loan for which principal or interest is ninety days past due and
when, in the opinion of management, there is reasonable doubt as to the timely
collection of interest or principal. Nonaccrual loans are returned to accrual
status when, in the opinion of management, the financial position of the
borrower indicates there is no longer any reasonable doubt as to the timely
collection of interest or principal.
LOAN QUALITY AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's best estimate of the
reserve necessary to adequately cover losses that could ultimately be realized
from current loan exposures. The provision for loan losses is the charge
against current earnings that is determined by management as the amount needed
to maintain an adequate allowance for loan losses. In determining the adequacy
of the allowance for loan losses, and therefore the provision to be charged to
current earnings, management relies predominantly on a disciplined credit review
and approval process which extends to the full range of the Registrant's credit
exposure. The review process is directed by overall lending policy and is
intended to identify, at the earliest possible stage, borrowers who might be
facing financial difficulty. Once identified, the magnitude of exposure to
individual borrowers is quantified in the form of specific allocations of the
allowance for loan losses. Collateral values are considered by management in
the determination of such specific allocations. Additional factors considered
by management in evaluating the overall adequacy of the allowance include
historical net loan losses, the level and composition of nonaccrual, past due
and renegotiated loans and the current and anticipated economic conditions in
the region where the Registrant operates.
Management recognizes that there are risk factors which are inherent in the
Registrant's loan portfolio. All financial institutions face risk factors in
their loan portfolios because risk exposure is a function of the business. The
Registrant's operations (and therefore its loans) are concentrated in east
central Illinois, an area where agriculture is the dominant industry.
Accordingly, lending and other business relationships with agriculture-based
businesses are critical to the Registrant's success. At December 31, 1997, the
Registrant's loan portfolio included $49.3 million of loans to borrowers whose
businesses are directly related to agriculture. The balance increased $2.9
million from $46.4 million at December 31, 1996. In addition to agricultural
lending, the Registrant has historically had substantial residential mortgage
lending activity in and around east central Illinois. At December 31, 1997,
these loans amounted to $181.3 million or 50.6% of total loans. Such
residential mortgage loans amounted to $172.3 million or 49.5% of total loans at
December 31, 1996.
TABLE 11 ALLOWANCE FOR LOAN LOSSES
Loan loss experience for the years ending December 31, are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Average loans outstanding,
net of unearned income $355,167 $326,302 $294,220 $243,166 $214,408
Allowance-beginning of year 2,684 2,814 2,608 2,110 1,906
Balance of
acquired subsidiary - - - 343 -
Charge-offs:
Commercial, financial
and agricultural 588 238 18 29 140
Real estate-mortgage 69 6 111 28 241
Installment 145 131 57 120 86
Total charge-offs 802 375 186 177 467
Recoveries:
Commercial, financial
and agricultural 28 53 73 98 150
Real estate-mortgage 1 - - 21 3
Installment 25 45 39 45 26
Total recoveries 54 98 112 164 179
Net charge-offs 748 277 74 13 288
Provision for loan losses 700 147 280 168 492
Allowance-end of period $ 2,636 $ 2,684 $ 2,814 $ 2,608 $ 2,110
Ratio of net charge-offs to
average loans .21% .08% .03% .01% .13%
Ratio of allowance for loan
losses to loans outstanding
(less unearned interest
at end of period) .74% .77% .90% .93% .95%
Ratio of allowance for loan
losses to nonperforming loans 156.4% 138.0% 156.8% 155.8% 200.6%
</TABLE>
The Registrant minimizes credit risk by adhering to sound underwriting and
credit review policies. These policies are reviewed at least annually, and
changes are approved by the board of directors. Senior management is actively
involved in business development efforts and the maintenance and monitoring of
credit underwriting and approval. The loan review system and controls are
designed to identify, monitor and address asset quality problems in an accurate
and timely manner. On a monthly basis, the board of directors reviews the
status of problem loans. In addition to internal policies and controls,
regulatory authorities and external auditors periodically review asset quality
and the overall adequacy of the allowance for loan losses.
During 1997, the Registrant had net charge-offs of $748,000, a significant
increase from 1996 and 1995 net charge-offs of $277,000 and $74,000,
respectively. Of the 1997 charge-offs, $527,000 or 70% were related to three
specific loans for which management does not anticipate any significant future
recoveries. Management believes that these losses represented isolated events
and do not reflect on the overall quality of the loan portfolio.
On December 31, 1997, the allowance for loan losses amounted to $2,636,000, or
.74% of total loans, and 156.4% of nonperforming loans. At December 31, 1996,
the allowance was $2,684,000, or .77% of total loans, and 138.0% of
nonperforming loans.
The allowance for loan losses, in management's judgment, would be allocated as
follows to cover potential loan losses (in thousands):
TABLE 12 ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1997 1996 1995
ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF
FOR LOANS FOR LOANS FOR LOANS
LOAN TO TOTAL LOAN TO TOTAL LOAN TO TOTAL
LOSSES LOANS LOSSES LOANS LOSSES LOANS
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 1,699 20.6% $ 1,854 21.5% $ 1,554 21.5%
Real estate-mortgage 245 70.4% 434 69.3% 314 68.8%
Installment 19 8.2% 152 8.7% 131 9.1%
Other - .8% - .5% - .6%
Total allocated 2,136 2,440 1,999
Unallocated 500 N/A 244 N/A 815 N/A
Allowance at end of
reported period $ 2,636 100.0% $ 2,684 100.0% $ 2,814 100.0%
</TABLE>
December 31, December 31,
1994 1993
ALLOWANCE % OF ALLOWANCE % OF
FOR LOANS FOR LOANS
LOAN TO TOTAL LOAN TO TOTAL
LOSSES LOANS LOSSES LOANS
Commercial, financial
and agricultural $ 1,481 21.8% $ 1,351 22.5%
Real estate-mortgage 427 69.3% 330 68.1%
Installment 100 7.9% 78 7.3%
Other - 1.0% - 2.1%
Total allocated 2,008 1,759
Unallocated 600 N/A 351 N/A
Allowance at end of
reported period $ 2,608 100.0% $ 2,110 100.0%
The allowance is allocated to the individual loan categories by a specific
allocation for all classified loans plus a percentage of loans not classified
based on historical losses.
DEPOSITS
Funding the Registrant's earning assets is substantially provided by a
combination of consumer, commercial and public fund deposits. The Registrant
continues to focus its strategies and emphasis on retail core deposits, the
major component of funding sources. The following table sets forth the average
deposits and weighted average rates at December 31, 1997, 1996 and 1995 (dollars
in thousands):
TABLE 13 COMPOSITION OF DEPOSITS
<TABLE>
<CAPTION>
1997 1996 1995
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Non-interest bearing $ 52,660 - $ 50,789 - $ 46,237 -
Interest bearing 125,666 2.93% 110,708 2.79% 106,118 2.66%
Savings 38,642 2.59% 39,364 2.72% 40,920 2.71%
Time deposits 226,431 5.50% 204,362 5.46% 202,305 5.42%
Total average deposits $443,399 3.87% $405,223 3.78% $395,580 3.76%
</TABLE>
The following table sets forth the maturity of time deposits of $100,000 or
more (in thousands):
TABLE 14 MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE
December 31,
1997 1996 1995
3 months or less $ 21,715 $ 20,658 $ 17,167
Over 3 through 6 months 12,287 7,322 6,451
Over 6 through 12 months 6,438 6,897 7,495
Over 12 months 10,293 5,893 6,217
Total $ 50,733 $ 40,770 $ 37,330
OTHER BORROWINGS
Other borrowings consist of securities sold under agreements to repurchase,
Federal Home Loan Bank ("FHLB") advances, and federal funds purchased.
Information relating to other borrowings for the last three years is presented
below (in thousands):
TABLE 15 SCHEDULE OF OTHER BORROWINGS
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
At December 31:
Securities sold under agreements to repurchase $10,780 $18,360 $16,815
Federal Home Loan Bank advances:
Overnight - 19,733 2,200
Fixed term - due in one year or less - 11,693 6,000
Fixed term - due after one year 7,000 1,000 3,500
Federal funds purchased - - -
Total $17,780 $50,786 $28,515
Average interest rate at year end 5.01% 5.91% 5.11%
Maximum Outstanding at Any Month-end
Securities sold under agreements to repurchase $17,710 $18,860 $21,200
Federal Home Loan Bank advances:
Overnight 23,733 23,083 5,000
Fixed term - due in one year or less 16,000 20,693 5,000
Fixed term - due after one year 9,000 7,500 6,500
Federal funds purchased - 6,500 -
Total $66,443 $76,636 $37,700
Averages for the Year
Securities sold under agreements to repurchase $10,806 $12,411 $16,481
Federal Home Loan Bank advances:
Overnight 6,933 8,136 1,104
Fixed term - due in one year or less 3,455 9,352 2,905
Fixed term - due after one year 6,833 6,432 3,598
Federal funds purchased 502 800 26
Total $28,529 $37,131 $24,114
Average interest rate during the year 5.02% 5.45% 5.24%
</TABLE>
Securities sold under agreements to repurchase primarily represent borrowings
originated as part of cash management services offered to corporate customers.
The remaining balance of securities sold under agreements to repurchase
represents term repurchase agreements with the State of Illinois.
FHLB advances represent borrowings by First Mid Bank to fund loan demand.
INTEREST RATE SENSITIVITY
The Registrant seeks to maximize its net interest margin within an acceptable
level of interest rate risk. Interest rate risk can be defined as the amount
of forecasted net interest income that may be gained or lost due to favorable or
unfavorable movements in interest rates. Interest rate risk, or sensitivity,
arises when the maturity or repricing characteristics of assets differ
significantly from the maturity or repricing characteristics of liabilities.
The Registrant monitors its interest rate sensitivity position to maintain a
balance between rate sensitive assets and rate sensitive liabilities. This
balance serves to limit the adverse effects of changes in interest rates. The
Registrant's asset/liability management committee oversees the interest rate
sensitivity position and directs the overall allocation of funds in an effort to
maintain a cumulative one-year gap to earning assets ratio of less than 30% of
total earning assets.
In the banking industry, a traditional measurement of interest rate
sensitivity is known as "GAP" analysis, which measures the cumulative
differences between the amounts of assets and liabilities maturing or repricing
at various intervals. The following table sets forth the Registrant's interest
rate repricing gaps for selected maturity periods at December 31, 1997 (in
thousands):
TABLE 16 GAP TABLE
<TABLE>
<CAPTION>
NUMBER OF MONTHS UNTIL NEXT REPRICING OPPORTUNITY
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS: 0-1 1-3 3-6 6-12 12+
Deposits with other financial
institutions $ 250 $ - $ - $ - $ -
Federal funds sold 5,925 - - - -
Taxable investment securities 24,033 18,439 6,311 22,752 35,072
Nontaxable investment securities 420 309 305 1,791 10,370
Loans 49,964 23,569 24,057 31,406 229,226
Total $ 80,592 $ 42,317 $ 30,673 $ 55,949 $ 274,668
INTEREST BEARING LIABILITIES:
Savings and N.O.W. accounts 118,617 - - - -
Money market accounts 49,341 - - - -
Other time deposits 35,430 41,828 42,838 40,266 75,679
Other borrowings 10,780 - - 1,000 6,000
Long-term debt 6,200 - - - -
Total $ 220,368 $ 41,828 $ 42,838 $ 41,266 $ 81,679
Periodic GAP $(139,776) $ 489 $ (12,165) $ 14,683 $ 192,989
Cumulative GAP $(139,776) $(139,287) $(151,452) $(136,769) $ 56,220
GAP as a % of interest earning assets:
Periodic (28.9%) 0.1% (2.5%) 3.0% 39.9%
Cumulative (28.9%) (28.8%) (31.3%) (28.2%) 11.6%
</TABLE>
At December 31, 1997, the Registrant was liability sensitive on a cumulative
basis through the twelve-month time horizon. Accordingly, future increases in
interest rates, if any, could have an unfavorable effect on the net interest
margin. However, the Registrant's historical repricing of N.O.W. and savings
accounts has not, and is not expected to change on a frequent basis. To some
extent, this would mitigate the negative effect of an upturn in rates. Over the
past years, management has placed an emphasis on growing core deposits, which
are considered to be less sensitive to changes in interest rates.
Interest rate sensitivity using a static GAP analysis basis is only one of
several measurements of the impact of interest rate changes on net interest
income used by the Registrant. Its actual usefulness in assessing the effect of
changes in interest rates varies with the constant changes which occur in the
composition of the Registrant's earning assets and interest-bearing liabilities.
For this reason, the Registrant uses financial models to project interest income
under various rate scenarios and assumptions relative to the prepayments,
reinvestment and roll overs of assets and liabilities, of which First Mid Bank
represents substantially all of the Registrant's rate sensitive assets and
liabilities. This analysis excluded the parent company and MIDS, whose assets
and liabilities are not deemed significant to interest rate sensitivity.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Based on the financial analysis performed as of December 31, 1997, which takes
into account how the specific interest rate scenario would be expected to impact
each interest-earning asset and each interest-bearing liability, the Registrant
estimates that changes in the prime interest rate would impact First Mid Bank's
performance as follows:
Increase (Decrease) In
Net Interest Net Interest Return On
Income Margin Equity
Current prime rate is 8.50% (000) 1997=3.97% 1997=11.67%
Prime rate increase of:
200 basis points to 10.50% $ (306) -1.46% -0.59%
100 basis points to 9.50% (71) -0.34% -0.14%
Prime rate decrease of:
200 basis points to 6.50% (689) -3.27% -1.35%
100 basis points to 6.50% (341) -1.62% -0.66%
The First Mid Bank's board of directors has adopted an interest rate risk
policy which establishes maximum decreases in the percentage change in net
interest margin of 5% in a 100 basis point rate shift and 10% in a 200 basis
point rate shift.
No assurance can be given that the actual net interest margin (percentage) or
net interest income would increase or decrease by such amounts in response to a
100 or 200 basis point increase or decrease in the prime rate.
Interest rate sensitivity analysis is also used to measure the Registrant's
interest risk by computing estimated changes in net portfolio value ("NPV") of
its cash flows from assets, liabilities and off-balance sheet items in the event
of a range of assumed changes in market interest rates. NPV represents the
market value of portfolio equity and is equal to the market value of assets
minus the market value of liabilities, with adjustments made for off-balance
sheet items. This analysis assesses the risk of loss in market risk sensitive
instruments in the event of a sudden and sustained two percent increase or
decrease in market interest rates. The following table presents, in thousands,
First Mid Bank's projected change in NPV for the various rate shock levels at
December 31, 1997. All market risk sensitive instruments presented in the table
are held-to-maturity or available-for-sale. First Mid Bank has no trading
securities.
Estimated
Changes In NPV As A
Interest Estimated % of PV Amount Percent
(basis) NPV of Assets of Change of Change
+200 bp $45,026 8.83% $(3,310) -6.85%
0 bp 48,336 9.13%
-200 bp 50,118 9.13% 1,782 3.67%
The above table indicates that at December 31, 1997, in the event of a sudden
and sustained increase in prevailing market interest rates, First Mid Bank's NPV
would be expected to decrease, and that in the event of a sudden and sustained
decrease in prevailing market interest rates, First Mid Bank's NPV would be
expected to increase. At December 31, 1997, First Mid Bank's estimated changes
in NPV were within the industry guidelines which normally allow a change in
capital of +/-10% from the base case scenario.
The NPV calculation is based on the net present value of discounted cash flows
utilizing market prepayment assumptions and market rates of interest provided by
Bloomberg quotations.
Computation of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions First Mid Bank may undertake in response to changes in interest rates.
Certain shortcomings are inherent in the method of analysis presented in the
computation of NPV. Actual values may differ from those projections set forth
in the table, should market conditions vary from assumptions used in the
preparation of the table. Certain assets, such as adjustable-rate loans, which
represent First Mid Bank's primary loan product, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
In addition, the proportion of adjustable-rate loans in First Mid Bank's
portfolio could decrease in future periods if market rates remain at or decrease
below current levels due to refinance activity. Further, in the event of a
change in interest rates, prepayment and early withdrawal, levels would likely
deviate significantly from those assumed in the table. Finally, the ability of
many borrowers to repay their adjustable-rate debt may decrease in the event of
an interest rate increase.
CAPITAL RESOURCES
At December 31, 1997, the Registrant's stockholders' equity amounted to
$45,576,000, a $5,672,000 or 14.2% increase from the $39,904,000 balance as of
December 31, 1996. During the year, net income contributed $4,726,000 to equity
before the payment of $1,181,000 dividends to common and preferred stockholders.
The change in net unrealized gain on available-for-sale investment securities
increased stockholders' equity by $284,000, net of tax.
During 1996, the Registrant began issuing common stock as part of a deferred
compensation plan for its directors and certain senior officers and as an
investment option under the Registrant's 401-K (First Retirement and Savings
Plan) for its employees. During 1997, 11,403 shares were issued pursuant to the
Deferred Compensation Plan and 44,893 shares were issued pursuant to the First
Retirement and Savings Plan. During 1996, 30,496 shares were issued pursuant to
the Deferred Compensation Plan and 31,468 shares were issued pursuant to the
First Retirement and Savings Plan.
The Registrant has a Dividend Reinvestment Plan whereby common and preferred
shareholders can elect to have their cash dividends automatically reinvested
into newly-issued common shares of the Registrant. Of the $1,181,000 in common
and preferred stock dividends paid during 1997, $655,000 or 55.5% was reinvested
into shares of common stock of the Registrant through the Dividend Reinvestment
Plan. This resulted in an additional 32,781 shares of common stock being issued
during 1997 and 33,686 during 1996.
The Registrant and First Mid Bank have capital ratios above the regulatory
capital requirements. These requirements call for a minimum total risk-based
capital ratio of 8% and a minimum leverage ratio of 3% for the most highly-rated
banks that do not expect significant growth. All other institutions are
required to maintain a ratio of Tier 1 capital to total risk-weighted assets of
4% to 5% depending on their particular circumstances and risk profiles. At
December 31, 1997, the Registrant's leverage ratio was 7.05%.
A tabulation of the Registrant's and First Mid Bank's capital ratios as of
December 31, 1997 follows:
TABLE 17 CAPITAL RATIOS
<TABLE>
<CAPTION>
TIER ONE CAPITAL TOTAL CAPITAL TIER ONE CAPITAL
TO RISK-WEIGHTED TO RISK-WEIGHTED TO AVERAGE
ASSETS ASSETS ASSETS
<S> <C> <C> <C>
First Mid-Illinois Bancshares, Inc.
(Consolidated) 11.39% 12.20% 7.05%
First Mid-Illinois Bank & Trust, N.A. 12.34% 13.17% 7.59%
</TABLE>
Banks and bank holding companies are generally expected to operate at or above
the minimum capital requirements. These ratios are in excess of regulatory
minimums and will allow the Registrant to operate without capital adequacy
concerns.
LIQUIDITY
Liquidity represents the ability of the Registrant and its subsidiaries to
meet the requirements of customers for loans and deposit withdrawals. Liquidity
management focuses on the ability to obtain funds economically for these
purposes and to maintain assets which may be converted into cash at minimal
costs. At December 31, 1997, the excess collateral at the Federal Home Loan
Bank will support approximately $90 million of additional advances. Management
monitors its expected liquidity requirements carefully, focusing primarily on
cash flows from operating, investing and financing activities.
EFFECTS OF INFLATION
Unlike industrial companies, virtually all of the assets and liabilities of
the Registrant are monetary in nature. As a result, interest rates have a more
significant impact on the Registrant's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or experience the same magnitude of changes as goods and services,
since such prices are effected by inflation. In the current economic
environment, liquidity and interest rate adjustments are features of the
Registrant's assets and liabilities which are important to the maintenance of
acceptable performance levels. The Registrant attempts to maintain a balance
between monetary assets and monetary liabilities, over time, to offset these
potential effects.
FUTURE ACCOUNTING CHANGES
In June, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "REPORTING COMPREHENSIVE INCOME," ("SFAS 130"). SFAS 130
establishes standards for reporting and presentation of comprehensive income and
its components in a full set of general purpose financial statements. SFAS 130
is effective for both interim and annual periods beginning after December 15,
1997, and is not expected to have a material impact on the consolidated
financial condition or results of operations.
In June, 1997, the FASB issued Statement No. 131, "DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION," ("SFAS 131"). SFAS 131 establishes
standards for the way public business enterprises are to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. SFAS 131 is effective for financial
periods beginning after December 15, 1997, and is not expected to have a
material impact on the Registrant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(In thousands, except share data) 1997 1996
<S> <C> <C>
ASSETS
Cash and due from banks (note 3):
Non-interest bearing $ 20,486 $ 20,158
Interest bearing 250 453
Federal funds sold 5,925 6,500
Cash and cash equivalents 26,661 27,111
Investment securities (note 4):
Available-for-sale, at fair value 116,782 114,027
Held-to-maturity, at amortized cost (estimated fair value of
$3,057 and $3,590 at December 31, 1997 and 1996, respectively) 3,020 3,580
Loans (note 5) 358,223 348,217
Less allowance for loan losses (note 6) 2,636 2,684
Net loans 355,587 345,533
Premises and equipment, net (note 7) 12,356 10,735
Accrued interest receivable 5,367 5,229
Intangible assets, net (notes 2 and 8) 8,550 5,472
Other assets (note 16) 4,655 3,710
TOTAL ASSETS $532,978 $515,397
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 9):
Non-interest bearing $ 53,599 $ 55,044
Interest bearing 403,999 358,632
Total deposits 457,598 413,676
Accrued interest payable 2,229 1,656
Securities sold under agreements to repurchase (notes 4 and 10) 10,780 18,360
Federal Home Loan Bank advances (note 10) 7,000 32,426
Long-term debt (note 11) 6,200 6,200
Other liabilities (note 16) 3,595 3,175
TOTAL LIABILITIES 487,402 475,493
Stockholders' Equity
Series A convertible preferred stock; no par value;
authorized 1,000,000 shares; issued 620 shares with
stated value of $5,000 per share 3,100 3,100
Common stock, $4 par value; authorized 6,000,000 shares
in 1997 and 4,000,000 shares in 1996; issued 1,972,709
shares in 1997 and 1,883,632 shares in 1996 7,891 3,771
Additional paid-in-capital 7,038 5,463
Retained earnings 27,271 27,578
Net unrealized gain on available-for-sale
investment securities, net of tax 300 16
Less treasury stock at cost, 2,000 shares (24) (24)
TOTAL STOCKHOLDERS' EQUITY 45,576 39,904
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $532,978 $515,397
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1997, 1996 and 1995
(In thousands, except per share data)
1997 1996 1995
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $30,040 $ 27,827 $ 25,214
Interest on investment securities:
Taxable 6,759 6,868 7,078
Exempt from federal income tax 701 629 733
Interest on federal funds sold 230 180 356
Interest on deposits with other financial institutions 75 55 84
Total interest income 37,805 35,559 33,465
INTEREST EXPENSE:
Interest on deposits (note 9) 17,147 15,310 14,888
Interest on securities sold under agreements
to repurchase 488 574 777
Interest on Federal Home Loan Bank advances 1,018 1,405 487
Interest on Federal funds purchased 26 44 2
Interest on long-term debt (note 11) 452 472 571
Total interest expense 19,131 17,805 16,725
Net interest income 18,674 17,754 16,740
Provision for loan losses (note 6) 700 147 280
Net interest income after provision for loan losses 17,974 17,607 16,460
OTHER INCOME:
Trust revenues 1,663 1,293 1,118
Brokerage revenues 464 386 183
Service charges 1,804 1,728 1,574
Securities (losses), net (note 4) (6) (9) -
Mortgage banking income 491 428 273
Other 1,005 973 861
Total other income 5,421 4,799 4,009
OTHER EXPENSE:
Salaries and employee benefits (note 14) 7,922 7,938 7,484
Net occupancy expense 1,116 1,098 1,021
Equipment rentals, depreciation and maintenance 1,666 1,247 1,277
Federal deposit insurance premiums 40 275 590
Savings Association Insurance Fund recapitalization assessment - 751 -
Amortization of intangible assets (note 8) 709 547 608
Stationary and supplies 692 559 449
Legal and professional 890 795 699
Marketing and promotion 529 579 500
Other 2,475 2,188 2,087
Total other expense 16,039 15,977 14,715
Income before income taxes 7,356 6,429 5,754
Income taxes (note 16) 2,630 2,263 1,830
Net income $ 4,726 $ 4,166 $ 3,924
Per common share data:
Basic earnings per share $ 2.30 $ 2.11 $ 2.05
Diluted earnings per share 2.17 1.99 1.94
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995
(In thousands, except per share data)
NET
UNREALIZED
GAIN(LOSS)
ON
AVAILABLE-
ADDITIONAL FOR-SALE
PREFERRED COMMON PAID-IN- RETAINED INVESTMENT TREASURY
STOCK STOCK CAPITAL EARNINGS SECURITIES STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994 $ 3,100 $ 3,515 $ 3,531 $ 21,577 $ (1,099) $ (24) $ 30,600
Net income - - - 3,924 - - 3,924
Cash dividends on preferred
stock ($462.50 per share) - - - (286) - - (286)
Cash dividends on common
stock ($.405 per share) - - - (722) - - (722)
Issuance of 32,444 common shares pursuant
to the Dividend Reinvestment Plan - 65 438 - - - 503
Change in net unrealized gain (loss)
on available-for-sale investment
securities, net of tax - - - - 1,290 - 1,290
DECEMBER 31, 1995 3,100 3,580 3,969 24,493 191 (24) 35,309
Net income - - - 4,166 - - 4,166
Cash dividends on preferred
stock ($462.50 per share) - - - (286) - - (286)
Cash dividends on common
stock ($.425 per share) - - - (795) - - (795)
Issuance of 33,686 common shares pursuant
to the Dividend Reinvestment Plan - 67 525 - - - 592
Issuance of 30,496 common shares pursuant
to the Deferred Compensation Plan - 61 476 - - - 537
Issuance of 31,468 common shares
pursuant to the First
Retirement & Savings Plan - 63 493 - - - 556
Change in net unrealized gain (loss)
on available-for-sale investment
securities, net of tax - - - - (175) - (175)
DECEMBER 31, 1996 3,100 3,771 5,463 27,578 16 (24) 39,904
Net income - - - 4,726 - - 4,726
Cash dividends on preferred
stock ($462.50 per share) - - - (286) - - (286)
Cash dividends on common
stock ($.46 per share) - - - (895) - - (895)
Issuance of 32,781 common shares pursuant
to the Dividend Reinvestment Plan - 96 559 - - - 655
Issuance of 11,403 common shares pursuant
to the Deferred Compensation Plan - 34 206 - - - 240
Issuance of 44,893 common shares
pursuant to the First
Retirement & Savings Plan - 138 810 - - - 948
Stock split in the form of a 100%
stock dividend (2-for-1) - 3,852 - (3,852) - - -
Change in net unrealized gain (loss)
on available-for-sale investment
securities, net of tax - - - - 284 - 284
December 31, 1997 $ 3,100 $ 7,891 $ 7,038 $ 27,271 $ 300 $ (24) $ 45,576
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,726 $ 4,166 $ 3,924
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 700 147 280
Depreciation, amortization and accretion, net 1,864 1,251 1,231
Loss on sale of securities, net 6 9 -
Gain on sale of loans held for sale, net (390) (322) (126)
Deferred income taxes (495) (77) (110)
Increase in accrued interest receivable (138) (832) (468)
Increase in accrued interest payable 573 76 566
Origination of mortgage loans held for sale (30,531) (21,139) (10,592)
Proceeds from sale of mortgage loans held for sale 29,605 21,113 11,055
(Increase) decrease in other assets (878) (1,300) 394
Increase (decrease) in other liabilities 461 309 (290)
Net cash provided by operating activities 5,503 3,401 5,864
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of mortgage servicing rights (103) (196) -
Purchases of premises and equipment (1,458) (2,036) (891)
Net increase in loans (8,978) (41,142) (25,262)
Proceeds from sales of:
Securities available-for-sale 9,983 31,667 487
Proceeds from maturities of:
Securities available-for-sale 31,463 32,894 19,905
Securities held-to-maturity 723 580 12,549
Purchases of:
Securities available-for-sale (43,718) (59,366) (16,200)
Securities held-to-maturity (170) (680) (6,161)
Purchase of financial organization, net of cash received 22,416 - -
Net cash provided by (used in) investing activities 10,158 (38,279) (15,573)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 16,166 16,797 7,311
Increase(decrease) in securities sold under agreements to repurchase (7,580) 1,545 1,225
Increase(decrease) in short-term Federal Home Loan Bank advances (31,426) 23,226 4,700
Decrease in federal funds purchased - - (500)
Repayment of long-term debt (1,000) (3,500) (500)
Proceeds from issuance of long-term debt 7,000 - 3,500
Proceeds from issuance of common stock 1,188 1,094 -
Dividends paid on preferred stock (32) (32) (58)
Dividends paid on common stock (427) (436) (387)
Net cash provided by (used in) financing activities (16,111) 38,694 15,291
Increase (decrease) in cash and cash equivalents (450) 3,816 5,582
Cash and cash equivalents at beginning of year 27,111 23,295 17,713
Cash and cash equivalents at end of year $26,661 $27,111 $23,295
ADDITIONAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $19,704 $17,969 $17,291
Income taxes 3,000 2,080 1,900
Loans transferred to real estate owned 578 290 182
Dividends reinvested in common shares 655 592 503
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING AND CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
First Mid-Illinois Bancshares, Inc. ("Registrant") and its wholly-owned
subsidiaries: First Mid-Illinois Bank & Trust, N.A. ("First Mid Bank"); and
Mid-Illinois Data Services, Inc. ("MIDS"). All significant intercompany
balances and transactions have been eliminated in consolidation. Certain
amounts in the 1996 and 1995 consolidated financial statements have been
reclassified to conform with the 1997 presentation. The accounting and
reporting policies of the Registrant conform to generally accepted accounting
principles and to general practices within the banking industry. The following
is a description of the more significant of these policies.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from these estimates.
CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include amounts due
from banks and Federal funds sold. Generally, Federal funds are sold for
one-day periods.
INVESTMENT SECURITIES
The Registrant classifies its debt securities into one or more of three
categories: held-to-maturity, available-for-sale, or trading. Held-to-maturity
securities are those which management has the positive intent and ability to
hold to maturity. Available-for-sale securities are those securities which
management may sell prior to maturity as a result of changes in interest rates,
prepayment factors, or as part of the Registrant's overall asset and liability
strategy. Trading securities are those securities bought and held principally
for the purpose of selling them in the near term. The Registrant has no
securities designated as trading.
Held-to-maturity securities are recorded at cost adjusted for amortization of
premium and accretion of discount to the earlier of the call date or maturity
date using the interest method.
Available-for-sale securities are recorded at fair value. Unrealized holding
gains and losses, net of the related income tax effect, are excluded from
income and reported as a separate component of stockholders' equity. If a
decrease in the market value of a security is expected to be other than
temporary, then the security is written down to its fair value through a charge
to income.
Realized gains and losses on the sale of investment securities are recorded
using the specific identification method.
LOANS
Loans are stated at the principal amount outstanding less unearned discount,
net of the allowance for loan losses. Interest on substantially all loans is
credited to income based on the principal amount outstanding.
The Registrant's policy is to generally discontinue the accrual of interest
income on any loan for which principal or interest is ninety days past due and
when, in the opinion of management, there is reasonable doubt as to the timely
collectibility of interest or principal. Nonaccrual loans are returned to
accrual status when, in the opinion of management, the financial position of the
borrower indicates there is no longer any reasonable doubt as to the timely
collectibility of interest or principal.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level deemed appropriate by
management to provide for known and inherent risks in the loan portfolio. The
allowance is based on a continuing review of the loan portfolio, the underlying
value of the collateral securing the loans, current economic conditions and past
loan loss experience. Loans which are deemed to be uncollectible are charged to
the allowance. The provision for loan losses and recoveries are credited to the
allowance.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a loan to be impaired
when it is probable that the Registrant will be unable to collect all amounts
due according to the contractual terms of the note agreement, including
principal and interest. The amount of the impairment is measured based on the
fair value of the collateral, if the loan is collateral dependent, or
alternatively, at the present value of expected future cash flows discounted at
the loan's effective interest rate. Interest income on impaired loans is
recorded when cash is received and only if principal is considered to be fully
collectible.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization is determined principally by the
straight-line method over the estimated useful lives of the assets.
INTANGIBLE ASSETS
Intangible assets generally arise from business combinations which the
Registrant accounted for as purchases. Such assets consist of the excess of the
purchase price over the fair market value of net assets acquired, with specific
amounts assigned to core deposit relationships of acquired businesses.
Intangible assets are amortized by the straight-line and accelerated methods
over various periods of up to fifteen years. The Registrant assesses the
recoverability of its intangible assets through reviews of various economic
factors on a periodic basis in determining whether impairment, if any, exists.
PREFERRED STOCK
In connection with the Registrant's acquisition of Heartland Savings Bank
("Heartland") in 1992, $3.1 million of Series A perpetual, cumulative, non-
voting, convertible, preferred stock was issued to directors and certain senior
officers of the Registrant pursuant to a private placement. 620 shares of the
preferred stock were sold at a stated value of $5,000 per share with such shares
bearing a dividend rate of 9.25%. The preferred stock may be converted at any
time, at the option of the preferred stockholder, into common shares at the
conversion ratio of 404.2 shares of common stock for each share of preferred.
The Registrant also has the right, any time after July 1, 1998, and upon giving
at least thirty days prior notice, to redeem all (but not less than all) of the
preferred stock at a cash value of $5,000 per share plus any accrued but unpaid
dividends. The Registrant also has the right at any time after July 1, 1998,
and upon giving at least thirty days prior notice, to require the conversion of
all (but not less than all) of the preferred stock into common stock at the
conversion ratio.
MORTGAGE BANKING ACTIVITIES
First Mid Bank originates residential mortgage loans both for its portfolio
and for sale into the secondary market, generally with servicing rights
retained. Included in mortgage banking income are gains or losses on the sale
of loans and servicing fee income. Origination costs for loans sold are
expensed as incurred. Loans that are originated and held for sale are carried
at the lower of aggregate amortized cost or estimated market value. Gains or
losses from loan sales are computed using the specific identification method and
are included in mortgage banking income in the Consolidated Statements of
Income.
Effective January 1, 1997, the Registrant adopted Financial Accounting
Standards Board's Statement No. 125, "ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES," ("SFAS 125"). SFAS 125
superseded Financial Accounting Standards Board's Statement No. 122, "ACCOUNTING
FOR MORTGAGE SERVICING RIGHTS," ("SFAS 122") which the Registrant adopted
effective January 1, 1996. SFAS 125 requires recognition as separate assets the
rights to service mortgage loans for others, however those rights are acquired.
Originated Mortgage Servicing Rights ("OMSRs") are amortized in proportion to
and over the period of estimated net servicing income. During 1997, $103,000 of
mortgage servicing rights were capitalized with $65,000 of amortization expense
being incurred. During 1996, $196,000 of mortgage servicing rights were
capitalized with $50,000 of amortization expense being incurred.
INCOME TAXES
The Registrant and its subsidiaries file consolidated Federal and State income
tax returns with each organization computing its taxes on a separate company
basis. Amounts provided for income tax expense are based on income reported for
financial statement purposes rather than amounts currently payable under tax
laws.
Deferred tax assets and liabilities are recognized for future tax consequences
attributable to the temporary differences existing between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases, as well as operating loss and tax credit carryforwards. To the extent
that current available evidence about the future raises doubt about the
realization of a deferred tax asset, a valuation allowance is established.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as an increase or
decrease in income tax expense in the period such change is enacted.
TRUST DEPARTMENT ASSETS
Property held for customers in fiduciary or agency capacities is not included
in the accompanying consolidated balance sheets since such items are not assets
of the Registrant or its subsidiaries.
EARNINGS PER SHARE
Effective December 31, 1997, the Registrant adopted Financial Accounting
Standards Board's Statement No. 128, "EARNINGS PER SHARE" ("SFAS 128"). Income
for Basic Earnings per Share ("EPS") is adjusted for dividends attributable to
preferred stock and is based on the weighted average number of common shares
outstanding. Diluted EPS is computed by using the weighted average number of
common shares outstanding, increased by the assumed conversion of the
convertible preferred stock and the assumed conversion of the stock options.
The components of basic and diluted earnings per common share for the years
ended December 31, 1997, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income $4,726,000 $4,166,000 $3,924,000
Less preferred stock dividends (286,000) (286,000) (286,000)
Net income available to common
stockholders' equity $4,440,000 $3,880,000 $3,638,000
Weighted average common shares
outstanding 1,928,727 1,840,921 1,774,739
Basic Earnings per Common Share $2.30 $2.11 $2.05
DILUTED EARNINGS PER SHARE:
Net income available to common
stockholders' equity $4,440,000 $3,880,000 $3,638,000
Assumed conversion of preferred stock 286,000 286,000 286,000
Net income available to common stock-
holders after assumed conversion $4,726,000 $4,166,000 $3,924,000
Weighted average common shares
outstanding 1,928,727 1,840,921 1,774,739
Assumed conversion of stock options 447 - -
Assumed conversion of preferred stock 250,604 250,604 250,604
Diluted weighted average common
shares outstanding 2,179,778 2,091,525 2,025,343
Diluted Earnings per Common Share $2.17 $1.99 $1.94
</TABLE>
STOCK SPLIT
On May 22, 1997, the Registrant declared a two-for-one stock split in the form
of a 100% stock dividend. Par value remained at $4 per share. The stock split
increased the Registrant's outstanding common shares from 2,000,000 to 4,000,000
shares. All references in the consolidated financial statements and notes
thereto as to the number of common shares, per common share amounts and market
prices of the Registrant's common stock have been restated giving retroactive
recognition to the stock split.
NOTE 2 - MERGERS AND ACQUISITIONs
In November, 1997, Heartland merged with and into First Mid Bank. Prior to
the merger, Heartland was a wholly-owned subsidiary of the Registrant.
Therefore, the merger had no effect on the Registrant's financial position and
results of its operations.
On March 7, 1997, the Registrant acquired the Charleston, Illinois branch
location and the deposit base of First of America Bank. This cash acquisition
added approximately $28 million to total deposits, $500,000 to loans, $1.3
million to premises and equipment and $3.8 million to intangible assets.
The acquisition of the branch was accounted for using the purchase method of
accounting whereby the acquired assets and deposits of the branch were recorded
at their fair values as of the acquisition date. The operating results have
been combined with those of the Registrant since March 7, 1997.
NOTE 3 - CASH AND DUE FROM BANKS
Aggregate cash and due from bank balances of $8,724,000 and $8,263,000 at
December 31, 1997 and 1996, respectively, were maintained in satisfaction of
statutory reserve requirements of the Federal Reserve Bank.
NOTE 4 - INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair
values for available-for-sale and held-to-maturity securities by major security
type at December 31, 1997 and 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $ 80,509 $ 198 $ (256) $ 80,451
Obligations of states and political
subdivisions 9,800 373 - 10,173
Mortgage-backed securities 23,272 195 (56) 23,411
Federal Home Loan Bank stock 2,115 - - 2,115
Other securities 632 - - 632
Total available-for-sale $116,328 $ 766 $ (312) $116,782
Held-to-maturity:
Obligations of states and political
subdivisions $ 3,020 $ 41 $ (4) $ 3,057
1996
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $ 86,518 $ 342 $ (585) $ 86,275
Obligations of states and political
subdivisions 7,917 249 (3) 8,163
Mortgage-backed securities 15,283 103 (82) 15,304
Federal Home Loan Bank stock 3,878 - - 3,878
Other securities 407 - - 407
Total available-for-sale $114,003 $ 694 $ (670) $114,027
Held-to-maturity:
Obligations of states and political
subdivisions $ 3,580 $ 28 $ (18) $ 3,590
</TABLE>
Proceeds from sales of investment securities and realized gains and losses
were as follows during the years ended December 31, 1997, 1996 and 1995 (in
thousands):
1997 1996 1995
Proceeds from sales $ 9,983 $ 31,667 $ 487
Gains 20 155 -
Losses 26 164 -
Maturities of investment securities were as follows at December 31, 1997 (in
thousands). Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
AMORTIZED ESTIMATED
COST FAIR VALUE
Available-for-sale:
Due in one year or less $ 12,886 $ 12,903
Due after one-five years 49,813 50,002
Due after five-ten years 23,596 23,571
Due after ten years 6,761 6,895
93,056 93,371
Mortgage-backed securities 23,272 23,411
Total available-for-sale $116,328 $116,782
Held-to-maturity:
Due in one year or less $ 457 $ 459
Due after one-five years 1,838 1,867
Due after five-ten years 280 285
Due after ten-years 445 446
Total held-to-maturity $ 3,020 $ 3,057
Total $119,348 $119,839
Investment securities carried at approximately $93,182,000 and $90,523,000 at
December 31, 1997 and 1996 respectively, were pledged to secure public deposits
and repurchase agreements and for other purposes as permitted or required by
law.
NOTE 5 - LOANS
A summary of loans at December 31, 1997 and 1996 follows (in thousands):
1997 1996
Commercial, financial and agricultural $ 73,920 $ 75,097
Real estate-mortgage 252,312 241,240
Installment 30,109 31,546
Other 2,791 1,526
Total gross loans 359,132 349,409
Less unearned discount 909 1,192
Net loans $358,223 $348,217
Certain officers, directors and principal stockholders of the Registrant and
its subsidiaries, their immediate families or their affiliated companies have
loans with one or more of the subsidiaries. These loans are made in the
ordinary course of business on substantially the same terms, including interest
and collateral, as those prevailing for comparable transactions with others and
do not involve more than the normal risk of collectibility. Loans to related
parties totaled $7,758,000 at December 31, 1997 and $7,852,000 at December 31,
1996. Activity during 1997 was as follows (in thousands):
Balance at December 31, 1996 $ 7,852
New loans 868
Loan repayments (962)
Balance at December 31, 1997 $ 7,758
The aggregate principal balances of nonaccrual, past due and renegotiated
loans were as follows at December 31, 1997 and 1996 (in thousands):
1997 1996
Nonaccrual loans $1,194 $790
Loans past due ninety days or more and still accruing 145 575
Renegotiated loans which are performing
in accordance with revised terms 346 580
Interest income which would have been recorded under the original terms of
such nonaccrual or renegotiated loans totaled $162,000, $143,000 and $143,000 in
1997, 1996 and 1995, respectively. The amount of interest income which was
recorded amounted to $32,000 in 1997, $39,000 in 1996 and $56,000 in 1995.
Impaired loans are defined as those loans where it is probable that amounts
due according to contractual terms, including principal and interest, will not
be collected. Both nonaccrual and restructured loans meet this definition. The
Registrant evaluates all loans not on nonaccrual or restructured with a balance
over $100,000 for impairment. Impaired loans are measured by the Registrant at
the present value of expected future cash flows or, alternatively, if the loan
is collateral dependant, at the fair value of the collateral. Known losses of
principal on these loans have been charged off. Interest income on nonaccrual
loans is recognized only at the time cash is received. Interest income on
restructured loans is recorded according to the most recently agreed upon
contractual terms.
The recorded investment of impaired loans totaled $1,540,000 at December 31,
1997 and $1,370,000 at December 31, 1996. Of this total, there was a related
allowance of $50,000 for $438,000 of these impaired loans at December 31, 1997.
There was no related allowance at December 31, 1996. The average recorded
investment in impaired loans during the year was $1,131,000 in 1997, $1,105,000
in 1996 and $1,076,000 in 1995. Total interest income which would have been
recorded under the original terms of the impaired loans was $162,000 in 1997,
$143,000 in 1996 and $143,000 in 1995. Total interest income recorded on a cash
basis was $32,000, $39,000 and $56,000 for 1997, 1996, and 1995, respectively.
First Mid Bank enters into financial instruments with off-balance sheet risk
to meet the financing needs of its customers. These financial instruments
include commitments to extend credit in accordance with line of credit
agreements and/or mortgage commitments and standby letters of credit. Standby
letters of credit are conditional commitments issued by a bank to guarantee the
performance of a customer to a third-party. First Mid Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by First Mid Bank upon an extension of credit, is
based on management's evaluation of the credit worthiness of the borrower.
Collateral varies but generally includes assets such as property, equipment and
receivables. At December 31, 1997 and 1996, respectively, the Registrant had
$43,533,000 and $34,620,000 of outstanding commitments to extend credit and
$855,000 and $1,182,000 of standby letters of credit. Management does not
believe that any significant losses will be incurred in connection with such
instruments.
Most of the Registrant's business activities are with customers located within
east central Illinois. At December 31, 1997 and 1996, the Registrant's loan
portfolio included $49,309,000 and $46,366,000, respectively, of loans to
borrowers directly related to the agricultural industry.
Mortgage loans serviced for others by First Mid Bank are not included in the
accompanying consolidated balance sheets. The unpaid principal balances of
these loans at December 31, 1997, 1996 and 1995 was approximately $62,784,000,
$57,031,000 and $43,622,000, respectively.
NOTE 6 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows during the three year
period ended December 31,1997 (in thousands):
1997 1996 1995
Balance, beginning of year $2,684 $2,814 $2,608
Provision for loan losses 700 147 280
Recoveries 54 98 112
Charge offs (802) (375) (186)
Balance, end of year $2,636 $2,684 $2,814
NOTE 7 - PREMISES AND EQUIPMENT, NET
Premises and equipment at December 31, 1997 and 1996 consisted of (in
thousands):
1997 1996
Land $ 2,950 $ 2,555
Buildings and improvements 8,549 7,738
Furniture and equipment 6,137 6,302
Leasehold improvements 353 353
Construction in progress 1,015 137
Subtotal 19,004 17,085
Accumulated depreciation and amortization 6,648 6,350
Total $12,356 $10,735
Depreciation expense was $1,168,000, $788,000 and $740,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
NOTE 8 - INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, at December 31, 1997 and
1996 consisted of (in thousands):
1997 1996
Excess of cost over fair market value of
acquired subsidiaries $ 6,901 $ 4,391
Core deposit premium of acquired subsidiaries 1,649 1,081
Total $ 8,550 $ 5,472
Amortization expense was $709,000, $547,000 and $608,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
NOTE 9 - DEPOSITS
As of December 31, 1997 and 1996, deposits consisted of (in thousands):
1997 1996
Demand deposits:
Non-interest bearing $ 53,599 $ 55,044
Interest bearing 82,479 85,350
Savings 36,861 37,176
Money market 49,341 35,836
Time deposits 235,318 200,270
Total deposits $457,598 $413,676
Total interest expense on deposits for the years ended December 31, 1997, 1996
and 1995 was as follows (in thousands):
1997 1996 1995
Interest-bearing demand $ 2,210 $ 1,931 $ 1,547
Savings 999 1,069 1,107
Money market 1,474 1,154 1,276
Time deposits 12,464 11,156 10,958
Total $17,147 $15,310 $14,888
As of December 31, 1997, 1996 and 1995, the aggregate amount of time deposits
in denominations of more than $100,000 and the total interest expense on such
deposits was as follows (in thousands):
1997 1996 1995
Outstanding $50,733 $36,746 $35,002
Interest expense for the year 2,676 2,108 1,963
NOTE 10 - OTHER BORROWINGS
As of December 31, 1997 and 1996 other borrowings consisted of (in thousands):
1997 1996
Securities sold under agreements to repurchase $10,780 $18,360
Federal Home Loan Bank advances:
Overnight advances - 19,733
Fixed term advances due in one year or less - 11,693
Fixed term advances due after one year 7,000 1,000
$17,780 $50,786
1997 1996 1995
Securities sold under agreements to repurchase:
Maximum outstanding at any month-end $17,710 $18,860 $21,200
Average amount outstanding for the year 10,806 12,411 16,481
First Mid Bank has collateral pledge agreements whereby it has agreed to keep
on hand at all time, free of all other pledges, liens, and encumbrances, whole
first mortgages on improved residential property with unpaid principal balances
aggregating no less than 167% of the outstanding advances from the Federal Home
Loan Bank. The securities underlying the repurchase agreements are under the
Registrant's control.
NOTE 11 - LONG-TERM DEBT
A summary of long-term debt at December 31, 1997 and 1996 was as follows (in
thousands):
1997 1996
Floating rate loan at 1.25% in 1997 and 1.5% in 1996 over
the Federal funds rate. Interest due quarterly. Principal
payments due quarterly in various amounts beginning
September 30, 1995. The debt matures September 30, 1999.
Effective interest rate of 6.82% at December 31, 1997
and 7.27% at December 31, 1996. $6,200 $ 6,200
The loan is secured by all of the common stock of First Mid Bank. The
borrowing agreement contains requirements for the Registrant and First Mid Bank
to maintain various operating and capital ratios and also contains requirements
for prior lender approval for certain sales of assets, merger activity, the
acquisition or issuance of debt and the acquisition of treasury stock. The
Registrant and First Mid Bank were in compliance with the existing covenants at
December 31, 1997 and 1996. The scheduled principal payments on the outstanding
long-term debt is $1.5 million during 1998 and the remaining balance in 1999.
NOTE 12 - REGULATORY CAPITAL
The Registrant is subject to various regulatory capital requirements
administered by the federal banking agencies. Bank holding companies follow
minimum regulatory requirements established by the Federal Reserve Board, First
Mid Bank follows similar minimum regulatory requirements established for
national banks by the Office of the Comptroller of the Currency. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary action by regulators that, if undertaken, could have a
direct material effect on the Registrant's financial statements.
Quantitative measures established by each regulatory agency to ensure capital
adequacy require the reporting institutions to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital to risk-
weighted assets, and of Tier 1 capital to average assets. Management believes,
as of December 31, 1997 and 1996, that all capital adequacy requirements have
been met.
As of December 31, 1997 and 1996, the most recent notification from the
primary regulators categorized the Registrant and First Mid Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, minimum total risk-based, Tier 1 risk-based and
Tier 1 leverage ratios must be maintained as set forth in the table. There are
no conditions or events since that notification that management believes have
changed these categories.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
DECEMBER 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk-weighted assets)
Registrant $ 39,416 12.20% $ 25,842 > 8.00% $ 32,303 > 10.00%
First Mid Bank 42,105 13.17 25,584 > 8.00 31,980 > 10.00
Tier 1 Capital
(to risk-weighted assets)
Registrant 36,780 11.39 12,921 > 4.00 19,382 > 6.00
First Mid Bank 39,469 12.34 12,792 > 4.00 19,188 > 6.00
Tier 1 Capital
(to average assets)
Registrant 36,780 7.05 20,879 > 4.00 26,099 > 5.00
First Mid Bank 39,469 7.59 20,807 > 4.00 26,009 > 5.00
</TABLE>
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk-weighted assets)
Registrant 37,106 11.80% $ 25,156 > 8.00% $ 31,433 > 10.00%
First Mid Bank 33,670 12.57 21,427 > 8.00 26,783 > 10.00
Heartland 6,957 16.00 3,479 > 8.00 4,348 > 10.00
Tier 1 Capital
(to risk-weighted assets)
Registrant 34,422 10.95 12,573 > 4.00 18,860 > 6.00
First Mid Bank 31,335 11.70 10,713 > 4.00 16,070 > 6.00
Heartland 6,608 15.20 1,739 > 4.00 2,609 > 6.00
Tier 1 Capital
(to average assets)
Registrant 34,422 6.81 20,213 > 4.00 25,267 > 5.00
First Mid Bank 31,335 7.65 16,380 > 4.00 20,475 > 5.00
Heartland 6,608 7.01 3,772 > 4.00 4,715 > 5.00
</TABLE>
NOTE 13 - DISCLOSURE OF FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS," ("SFAS 107"), requires the disclosure of the
estimated fair value of financial instrument assets and liabilities. For the
Registrant, as for most financial institutions, most of the assets and
liabilities are considered financial instruments as defined in SFAS 107.
However, many of the Registrant's financial instruments lack an available
trading market as characterized by a willing buyer and seller engaging in an
exchange transaction. Additionally, the Registrant's general practice and
intent is to hold its financial instruments until maturity and not to engage in
trading or sales activity. Accordingly, significant assumptions and estimations
as well as present value calculations were used by the Registrant for purposes
of the SFAS 107 disclosure. Future changes in these assumptions or
methodologies may have a material effect on estimated fair values.
Estimated fair values have been determined by the Registrant using the best
available information and an estimation methodology suitable for each category
of financial instrument. The estimation methodology used, the estimated fair
values and the carrying amount at December 31, 1997 and 1996 were as follows (in
thousands):
Financial instruments for which an active secondary market exists have been
valued using quoted available market prices.
1997 1996
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
Cash and cash equivalents $ 26,661 $ 26,661 $ 27,111 $ 27,111
Investments available-for-sale 116,782 116,782 114,027 114,027
Investments held-to-maturity 3,057 3,020 3,590 3,580
Financial instrument liabilities with stated maturities and other borrowings
have been valued at present value, using a discount rate approximating current
market rates for similar assets and liabilities.
1997 1996
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
Deposits with stated maturities $235,283 $235,318 $200,401 $200,270
Securities sold under agreements
to repurchase 10,761 10,780 18,319 18,360
Federal Home Loan Bank advances 6,974 7,000 32,364 32,426
Financial instrument liabilities without stated maturities and floating rate
long-term debt have estimated fair values equal to both the amount payable on
demand and the carrying amount.
1997 1996
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
Deposits with no stated maturity $222,280 $222,280 $213,406 $213,406
Floating rate long-term debt 6,200 6,200 6,200 6,200
For loans with floating interest rates, it is assumed that the estimated fair
values generally approximate the carrying amount balances. Fixed rate loans
have been valued using a discounted present value of projected cash flow. The
discount rate used in these calculations is the current rate at which similar
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities.
1997 1996
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
Net loan portfolio $357,218 $355,587 $345,216 $345,533
The notional amount of off-balance sheet items such as unfunded loan
commitments and stand-by letters of credit generally approximate their estimated
fair values.
NOTE 14 - RETIREMENT PLAN
The Registrant has a defined contribution retirement plan which covers
substantially all employees and which provides for base contributions of 4% of
compensation and a matching contribution by the Registrant of up to 50% of the
first 4% of voluntary employee contributions. Employee contributions are
limited to 15% of compensation. The total expense for the plan amounted to
$352,000, $309,000 and $285,000 in 1997, 1996 and 1995, respectively.
NOTE 15 - STOCK OPTION PLAN
In 1997, the Registrant established an Incentive Stock Option Plan
("ISO Plan") intended to provide a means whereby directors and certain officers
can acquire shares of the Registrant's common stock. A maximum of 100,000
shares have been authorized under the ISO Plan. The shares will be awarded at
an exercise price equal to the fair market value of the shares on the date of
grant. The options are granted for a 10 year term and vest over a period of
four years.
In October, 1997, the Registrant granted 19,500 options at an option price of
$23.51. In December, 1997, the Registrant granted 11,500 options at an option
price of $33.73. The Registrant applied APB Opinion No. 25 in accounting for
the ISO Plan and, accordingly, compensation cost based on fair value at grant
date has not been recognized for its stock options in the consolidated financial
statements for the year ended December 31, 1997. The Registrant has not
presented compensation cost based on the fair value at grant date for its stock
options under Statement of Financial Accounting Standards No. 123, "ACCOUNTING
FOR STOCK-BASED COMPENSATION" as the pro forma impact would be insignificant as
the ISO Plan initial grants were near year end. Pro forma information will be
presented in future years.
NOTE 16 - INCOME TAXES
The components of Federal and State income tax expense (benefit) for the years
ended December 31, 1997, 1996 and 1995 were as follows (in thousands):
1997 1996 1995
Current
Federal $2,845 $2,134 $1,940
State 280 206 -
Total Current 3,125 2,340 1,940
Deferred
Federal (434) (66) (110)
State (61) (11) -
Total Deferred (495) (77) (110)
Total $2,630 $2,263 $1,830
Recorded income tax expense differs from the expected tax expense (computed by
applying the applicable statutory U.S. Federal tax rate of 34% to income before
income taxes). The principal reasons for this difference are as follows (in
thousands):
1997 1996 1995
Expected income taxes $2,501 $2,186 $1,956
Effects of:
Tax-exempt income (263) (235) (276)
Nondeductible interest expense 31 28 29
Goodwill amortization 120 120 120
State deduction, net of federal taxes 137 129 -
Other items, net 104 35 1
Total $2,630 $2,263 $1,830
The tax effects of the temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are presented below (in thousands):
1997 1996
Deferred tax assets:
Allowance for loan losses $ 623 $ 423
Employee benefits - 114
Deferred Compensation 616 262
Other, net 92 54
Total gross deferred tax assets $ 1,331 $ 853
Deferred tax liabilities:
Depreciation $ 291 $ 469
Available-for-sale investment securities 154 8
Purchase accounting 319 144
Other, net 133 147
Total gross deferred tax liabilities $ 897 $ 768
Net deferred tax assets $ 434 $ 85
Deferred tax assets and deferred tax liabilities are recorded in other assets
and other liabilities, respectively, on the consolidated balance sheets. No
valuation allowance related to deferred tax assets has been recorded at December
31, 1997 and 1996 as management believes it is more likely than not that the
deferred tax assets will be fully realized.
NOTE 17 - DIVIDEND RESTRICTIONS
Banking regulations impose restrictions on the ability of First Mid Bank to
pay dividends to the Registrant. At December 31, 1997, regulatory approval
would have been required for aggregate dividends from First Mid Bank to the
Registrant in excess of approximately $5.6 million. The amount of such dividends
that could be paid is further restricted by the limitations of sound and prudent
banking principles.
NOTE 18 - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are various outstanding commitments
and contingent liabilities such as guarantees, commitments to extend credit,
claims and legal actions which are not reflected in the accompanying
consolidated financial statements. In the opinion of management, no significant
losses are anticipated as a result of these matters.
NOTE 19 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Presented below are condensed balance sheets, statements of income and cash
flows for the Parent Company (in thousands):
FIRST MID-ILLINOIS BANCSHARES, INC. (PARENT COMPANY)
BALANCE SHEETS:
December 31, 1997 1996
Assets
Cash $ 1,055 $ 786
Premises and equipment, net 49 62
Investment in subsidiaries 48,907 43,956
Other Assets 2,910 2,445
Total Assets $52,921 $47,249
Liabilities and stockholders' equity
Liabilities
Dividends payable $ 581 $ 442
Long-term debt 6,200 6,200
Other liabilities 564 703
Total Liabilities 7,345 7,345
Stockholders' equity 45,576 39,904
Total Liabilities and stockholders' equity $52,921 $47,249
FIRST MID-ILLINOIS BANCSHARES, INC. (PARENT COMPANY)
STATEMENTS OF INCOME:
YEARS ENDED DECEMBER 31, 1997 1996 1995
Income:
Dividends from subsidiaries $ 756 $ 2,737 $ 1,369
Other income 120 48 25
876 2,785 1,394
Operating expenses 1,203 1,037 1,266
Income (loss) before income taxes and equity
in undistributed earnings of subsidiaries (327) 1,748 128
Income tax benefit 385 332 402
Income before equity in undistributed
earnings of subsidiaries 58 2,080 530
Equity in undistributed earnings of subsidiaries 4,668 2,086 3,394
Net income $4,726 $4,166 $3,924
FIRST MID-ILLINOIS BANCSHARES, INC. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS:
YEARS ENDED DECEMBER 31, 1997 1996 1995
Cash flows from operating activities:
Net income $ 4,726 $ 4,166 $ 3,924
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation, amortization, accretion, net 7 8 5
Equity in undistributed earnings of
subsidiaries (4,668) (2,086) (3,394)
Increase in other assets (445) (1,515) (93)
Increase (decrease) in other liabilities (67) (131) 331
Net cash provided by (used in) operating
activities (447) 442 773
Net cash used in investing activities:
Purchases of equipment (13) (6) (18)
Net cash used in investing activities (13) (6) (18)
Cash flows from financing activities:
Repayment of long-term debt (1,000) (1,000) (500)
Proceeds from issuance of long-term debt 1,000 - -
Proceeds from issuance of common stock 1,188 1,094 -
Dividends paid on preferred stock (32) (32) (58)
Dividends paid on common stock (427) (436) (387)
Net cash provided by (used in) financing
activities 729 (374) (945)
Increase (decrease) in cash 269 62 (190)
Cash at beginning of year 786 724 914
Cash at end of year $1,055 $ 786 $ 724
<PAGE>
STATEMENT OF RESPONSIBILITY FOR FINANCIAL DATA
Management is responsible for the integrity of all the financial data included
in this Annual Report. The financial statements and related notes are prepared
in accordance with generally accepted accounting principles, which in the
judgement of management are appropriate in the circumstances. Financial
information elsewhere in this Report is consistent with that in the financial
statements.
Management maintains a system of internal accounting control, including an
internal audit program, which provides reasonable assurance that assets are
safeguarded against loss from unauthorized use or disposition, transactions are
properly authorized and accounting records are reliable for the preparation of
financial statements. The foundation of the system of internal accounting
control rests upon careful selection and training of personnel, segregation of
responsibilities and application of formal policies and procedures that are
consistent with the highest standards of business conduct. The system of
internal accounting control is being continuously modified and improved in
response to changes in business conditions and operations.
The board of directors has an audit committee comprised of six outside
directors. The Committee meets periodically with the independent auditors, the
internal auditors and management to ensure that the system of internal
accounting control is being properly administered and that financial data is
being properly reported. The committee reviews the scope and timing of both the
internal and external audits, including recommendations made with respect to the
system of internal accounting control by the independent auditors.
The consolidated financial statements, as identified in the accompanying
Independent Auditors' Report, have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The audits were conducted in
accordance with generally accepted auditing standards, which included tests of
the accounting records and other auditing procedures considered necessary to
formulate an opinion as to the fairness, in all material respects, of the
consolidated financial statements.
Daniel E. Marvin, Jr.
Chairman and Chief Executive Officer
William S. Rowland
Chief Financial
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Mid-Illinois Bancshares, Inc.
Mattoon, Illinois:
We have audited the accompanying consolidated balance sheets of First Mid-
Illinois Bancshares, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First Mid-
Illinois Bancshares, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 23, 1998
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
"Election of Directors" on pages 2 through 3 of the 1998 Proxy Statement is
incorporated by reference.
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Registrant's executive officers and directors and persons who own more than 10%
of the Registrant's common stock file reports of ownership and changes in
ownership with the Securities and Exchange Commission and with the exchange on
which the Registrant's shares of common stock are traded. Such persons are also
required to furnish the Registrant with copies of all Section 16(a) forms they
file. Based solely on the Registrant's review of the copies of such forms, the
Registrant is not aware that any of its directors and executive officers or 10%
stockholders failed to comply with the filing requirements of Section 16(a)
during the period commencing January 1, 1997 and ending December 31, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant are identified below. The executive
officers of the Registrant are elected annually by the Registrant's board of
directors.
Name (Age) Position With Registrant
Daniel E. Marvin, Jr. (60) Chairman of the Board of Directors,
President and Chief Executive Officer
William S. Rowland (51) Director, Executive Vice President, Chief
Financial Officer, Treasurer
John M. Remsen, Jr. (52) Executive Vice President
John R. Kuczynski (45) Vice President, Trust and Farm
Stanley E. Gilliland (53) Vice President, Lending
Alfred M. Wooleyhan, Jr. (50) Vice President, Development
Daniel E. Marvin, Jr., age 60, has been Chairman of the Board of Directors,
President and Chief Executive Officer of the Registrant and First Mid Bank since
1983.
William S. Rowland, age 51, has served as a director of the Registrant since
1991, has been Chief Financial Officer since 1989 and has served as Treasurer
since 1991. Since 1989, Mr. Rowland has been Executive Vice President, Finance
of First Mid Bank and has also served as a director of MIDS. Mr. Rowland was in
the Davenport, Iowa, office of KPMG Peat Marwick LLP from 1975-1989.
John M. Remsen, Jr., age 52, has been Executive Vice President of the
Registrant and President and Chief Executive Officer of First Mid Bank since
August, 1997. Mr. Remsen was an Executive Vice President, Marketing for Busey
Bank in Urbana, Illinois from 1992 to 1997.
John R. Kuczynski, age 45, has been Vice President of the Trust and Farm
Department of the Registrant since June, 1996. Mr. Kuczynski was a Sr. Vice
President and Trust Officer for the Amcore Trust Company in Sterling, Illinois,
from 1980-1996.
Stanley E. Gilliland, age 53, has been Vice President of Lending of the
Registrant since 1985, and has been Executive Vice President of Lending for
First Mid Bank since 1990.
Alfred M. Wooleyhan, Jr., age 50, has been Vice President of Development of
the Registrant since the beginning of 1995. Mr. Wooleyhan was the President of
the Charleston Business Unit of First Mid Bank from 1989-1995.
ITEM 11. EXECUTIVE COMPENSATION
"Remuneration of Executive Officers," "Retirement Benefits" and "Transactions
with Management" on pages 4 through 9 of the 1998 Proxy Statement are
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" on pages 10 through 11 of the 1998 Proxy Statement are incorporated
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
"Transactions with Management" on page 4 of the 1998 Proxy Statement is
incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (2) -- Financial Statements and Financial Statement Schedules
The following consolidated financial statements and financial statement
schedules of the Registrant are filed as part of this document under Item 8.
Financial Statements and Supplementary Data:
Consolidated Balance Sheets -- December 31, 1997 and 1996
Consolidated Statements of Income -- For the Years Ended December 31, 1997,
1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity -- For the Years
Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows -- For the Years Ended December 31, 1997,
1996 and 1995
(a)(3) -- Exhibits
(a)(3) -- The exhibits required by Item 601 of Regulation S-K and filed herewith
are listed in the Exhibit Index which follows the Signature Page and immediately
precedes the exhibits filed.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the quarter
ended December 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized on this 18th day of March,
1998.
FIRST MID-ILLINOIS BANCSHARES, INC.
(Registrant)
/s/ Daniel E. Marvin, Jr.
*-------------------------------------*
Daniel E. Marvin, Jr.
President and Chief Executive Officer
/s/ William S. Rowland
*-------------------------------------*
William S. Rowland
Chief Financial Officer
Dated: March 18, 1998
*---------------------*
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 18th day of March, 1998, by the following
persons on behalf of the Registrant and in the capacities listed.
SIGNATURE AND TITLE
by /s/ Daniel E. Marvin, Jr.
Daniel E. Marvin, Jr.
(Principal Executive Officer) and Director
by /s/ William S. Rowland
William S. Rowland
(Principal Financial Officer) and Director
by
Charles A. Adams
Director
by
Kenneth R. Diepholz
Director
by
Richard A. Lumpkin
Director
by /s/ Gary W. Melvin
Gary W. Melvin
Director
by /s/ William G. Roley
William G. Roley
Director
by /s/ Ray A. Sparks
Ray A. Sparks
Director
<PAGE>
EXHIBIT INDEX TO FORM 10-K REGISTRATION STATEMENT
EXHIBIT
NUMBER DESCRIPTION AND FILING OR INCORPORATION REFERENCE
3.1 RESTATED CERTIFICATE OF INCORPORATION AND AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION OF FIRST MID-
ILLINOIS BANCSHARES, INC. Exhibit 3(a) to First Mid-
Illinois Bancshares, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1987 (File No. 0-13688)
3.2 RESTATED BYLAWS OF FIRST MID-ILLINOIS BANCSHARES, INC.
Exhibit 3(b) to First Mid-Illinois Bancshares, Inc.'s
Annual Report on Form 10-K for the year ended December
31, 1987 (File No 0-13368)
10.1 EMPLOYMENT AGREEMENT BETWEEN THE REGISTRANT AND WILLIAM
S. ROWLAND (Filed herewith)
10.2 EMPLOYMENT AGREEMENT BETWEEN THE REGISTRANT AND DANIEL
E. MARVIN, JR. (Filed herewith)
10.3 EMPLOYMENT AGREEMENT BETWEEN THE REGISTRANT AND JOHN M.
REMSEN, JR. (Filed herewith)
11.1 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(Filed herewith)
21.1 SUBSIDIARIES OF THE REGISTRANT
(Filed herewith)
23.1 CONSENT OF KPMG PEAT MARWICK LLP
(Filed herewith)
27.1 FINANCIAL DATA SCHEDULE
(Filed herewith)
99.1 PROXY STATEMENT FOR THE 1998 ANNUAL MEETING OF
STOCKHOLDERS (Filed herewith)
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AND BONUS AGREEMENT
Employment and bonus agreement ("Agreement") made and entered into this 17{th}
day of December, 1997, by and between First Mid-Illinois Bancshares, Inc.,
("Bancshares") a corporation with its principal place of business located in
Mattoon, Illinois and WILLIAM S. ROWLAND ("Employee").
In consideration of the promises and of the mutual covenants and agreements
hereinafter set forth, the parties hereto acknowledge and agree as follows:
ARTICLE ONE
NATURE AND TERM OF EMPLOYMENT
1.01 TERM OF EMPLOYMENT:
The term of such employment shall continue for three (3) years from the current
date. Thereafter, unless employment has been previously terminated, Employee
shall continue his employment with Bancshares on an "at will" basis and this
Agreement shall in its entirety terminate unless extended by mutual agreement.
1.02 DUTIES:
The duties of Employee shall be determined by Bancshares' Board of Directors,
and Employee will adhere to the policies and procedures of Bancshares and will
follow the supervision and direction of the Board in the performance of such
duties. Employee agrees to devote his full working time, attention and energies
to the diligent and satisfactory performance of his duties hereunder. Employee
will not while he is employed by Bancshares engage in any activity which would
have an adverse affect on Bancshares' reputation, goodwill and business
relationship or which would result in economic harm to Bancshares.
ARTICLE TWO
COMPENSATION AND BENEFITS
2.01 BASE SALARY:
During the term of Employee's employment, Bancshares shall pay to Employee an
annual base salary of $117,200, payable in equal biweekly installments as are
customary under Bancshares' payroll practices. Bancshares may review and adjust
Employee's base salary from year to year but during term of the Employee's
employment, Bancshares may not decrease the Employee's aforementioned base
salary.
2.02 INCENTIVE COMPENSATION PLAN:
During the term of Employee's employment hereunder, the Employee shall be a
participant in Bancshares' Incentive Compensation Plan for calendar year 1998,
and thereafter, Employee's bonus shall be paid strictly in accordance with the
Plan. Pursuant to the Plan, Employee will have an opportunity to receive
incentive compensation of a maximum of 25% of Employee's base salary.
2.03 DEFERRED COMPENSATION PLAN:
During the term of the Employee's employment hereunder, the Employee shall be
eligible to participate in the Company's Deferred Compensation Plan under terms
and conditions of the Plan.
2.04 COMPANY STOCK OPTION PLAN:
During the term of Employee's employment hereunder, the Employee shall be
eligible to participate in the Company's Stock Option Plan. Actual stock option
awards shall be made in accordance with the approved Plan.
2.05 VACATION:
Employee shall be entitled to four (4) weeks of paid vacation each year during
the term of this Agreement.
2.06 HEALTH BENEFITS:
Bancshares offers a health and major medical insurance plan and will pay the
cost of Employee's coverage. Said insurance plan includes an option for coverage
of Employee's dependents. The cost of coverage for any and all dependents shall
be the sole responsibility of Employee.
2.07 OTHER BENEFITS:
During the term of the contract, Bancshares shall provide the following
additional benefits to Employee subject to any and all tax or 1099 consequences:
(1) Use of Company-owned or leased vehicle for professional and personal use.
(2) An amount equal to the annual dues for a Class "H" membership at the
Mattoon Golf & Country Club.
(3) Use of a cellular phone for work-related calls and calls associated with
Internet connection for Employee's home.
(4) WITHHOLDING: All salary, bonus and other payments described in this
Agreement shall be subject to withholding for federal, state or local taxes,
amounts withheld under applicable benefit policies or programs, and any other
amounts that may be required to be withheld by law, judicial order or otherwise.
ARTICLE THREE
CONFIDENTIAL INFORMATION
3.01 DEFINITION OF CONFIDENTIAL INFORMATION:
For the purposes of this Agreement, the term "Confidential Information" shall
mean, but shall not be limited to, any technical or non-technical data,
formulae, compilations, programs, devices, methods, techniques, procedures,
manuals, financial data, business plans, lists of actual or potential customers,
lists of employees, and any information regarding the Employer's products,
marketing or database, or that of any affiliate of Employer, which is not
generally known to the public. The Employer and Employee acknowledge and agree
that such Confidential Information is extremely valuable to the Employer and may
constitute trade secret information under applicable law. In the event that any
part of the Confidential Information becomes generally known to the public
through legitimate origins (other than by the breach of this Agreement by
Employee or by other misappropriation of the Confidential Information), that
part of the Confidential Information shall no longer be deemed Confidential
Information for the purposes of this Agreement, but Employee shall continue to
be bound by the terms of this Agreement as to all other Confidential
Information.
3.02 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION:
Except as required in the faithful performance of Employee's duties hereunder
(or as required by law), Employee will not during, or after termination of,
Employee's employment by the Employer, in any form or manner, directly or
indirectly, divulge, disclose or communicate to any person, entity, firm,
corporation or any other third party, or utilize for Employee's personal benefit
or for the benefit of any competitor of the Employer, any Confidential
Information.
3.03 DELIVERY UPON TERMINATION:
Upon termination of Employee's employment with the Employer for any reason,
Employee shall promptly deliver to the Employer all correspondence, files,
manuals, letters, notes, notebooks, reports, programs, plans, proposals,
financial documents, and any other documents or data concerning the Employer's
customers, database, business plan, marketing strategies, or processes and/or
which contains Confidential Information, together with all other property of the
Employer or any affiliate in Employee's possession, custody or control.
ARTICLE FOUR
NONCOMPETE AND NONSOLICITATION COVENANTS
4.01 COVENANT NOT TO COMPETE:
For a period of two years after termination of Employee's employment for any
reason, Employee will not, on behalf of himself or on behalf of another person,
corporation, partnership or entity, solicit for sale, represent, and/or sell
Competing Products with the Counties of Coles, Moultrie, Douglas, Cumberland,
Effingham and Champaign, Illinois, to any person or entity who or which was
Employee's customer during the last twelve (12) months of Employee's employment
and with whom Employee dealt on behalf of Employer. "Competing Products" as
used in this Article means products or services which are similar to, compete
with, or can be used for the same purposes as products or services sold or
offered for sale by Employer or which were in development by Employer
within the last twelve (12) months of Employee's employment.
4.02 COVENANT NOT TO SOLICIT EMPLOYEES:
For a period of two (2) years following termination of his employment with the
Employer, Employee will not, or any reason, employ, solicit or endeavor to
entice away from the Employer (whether for his own benefit or on behalf of
another person or entity) any employees of the Employer who have had access to
confidential information to work for any competitor of the Employer, nor will
Employee otherwise attempt to interfere (to the Employer's detriment) in the
relationship between the Employer and any such employees.
ARTICLE FIVE
TERMINATION
5.01 TERMINATION OF EMPLOYEE:
The Employer shall have the right to terminate Employee's employment at any time
at will for any reason upon ten (10) days prior written notice to Employee. If
Employee's employment is terminated for any reason other than cause, the
Employer shall continue to pay to Employee his monthly base salary for a total
of twelve (12) months.
5.02 TERMINATION OF EMPLOYEE DUE TO CAUSE:
The Employer may terminate the Employee at any time for cause as set forth in
Bancshares' Employee Handbook, a copy of which is attached hereto as "Exhibit
C". In the event of termination for cause, no further salary or benefits will
be paid to Employee.
5.03 TERMINATION DUE TO MERGER OR ACQUISITION:
If Employee's employment is terminated as a result of merger or acquisition of
Employer or Bancshares, and the Employee is not continued at same salary and
responsibility level, then Employer shall pay to Employee the greater of: (I)
two years' base salary; (ii) base salary for the balance of the initial three
year employment term.
5.04 TERMINATION BY EMPLOYEE:
Subject to the provisions of Article Four above, Employee may terminate his
employment with the Employer prior to the end of the Employment Term. If
Employee's employment is so terminated, the Employer shall be obligated to
continue to pay to Employee only his then current salary and other benefits
accrued up to and including the date on which Employee's employment is so
terminated. Employer shall have no further liability or obligation to Employee.
5.05 CHANGE IN EMPLOYMENT STATUS:
Subject to the provisions of Article Four - Noncompete and Nonsolicitation
Covenants above and only upon mutual agreement of Employer and Employee,
Employee's employment status may be changed at any time to reflect partial or
full retirement. Upon full retirement, the provisions of Article One - Nature
and Term of Employment and Article Two - Compensation and Benefit will be null
and void. Upon partial retirement, the terms of this contract will be reduced to
one year and the terms of Article One and Article Two renegotiated.
ARTICLE SIX
MISCELLANEOUS
6.01 ASSIGNMENT:
Employee and Employer acknowledge and agree that the covenants, terms and
provisions contained in this Agreement constitute a personal employment contract
and the rights and obligations of the parties thereunder cannot be transferred,
sold, assigned, pledged or hypothecated, excepting that the rights and
obligations of the Employer under this Agreement may be assigned or transferred
pursuant to a sale of the business, merger, consolidation, share exchange, sale
of substantially all of the Employer's assets, or other reorganization described
in Section 368 of the Internal Revenue Code, or through liquidation, dissolution
or otherwise, whether or not the Employer is the continuing entity, provided
that the assignee, or transferee is the successor to all or substantially all of
the assets of the Employer and such assignee or transferee assumes the rights
and duties of the Employer, if any, as contained in this Agreement, either
contractually or as a matter of law.
6.02 ENTIRE AGREEMENT:
This Agreement contains the entire agreement between the parties with respect to
the subject matter hereof and may not be modified except in writing by the
parties hereto. Furthermore, the parties hereto specifically agree that all
prior agreements, whether written or oral, relating to Employee's employment by
the Employer shall be of no further force or effect from and after the date
hereof.
6.03 SEVERABILITY:
If any phrase clause or provision of this Agreement is declared invalid or
unenforceable by a court of competent jurisdiction, such phrase, clause or
provision shall be deemed severed from this Agreement, but will not affect any
other provisions of this Agreement, which shall otherwise remain in full force
and effect. If any restriction or limitation in this Agreement is deemed to be
unreasonable, onerous and unduly restrictive by a court of competent
jurisdiction, it shall not be stricken, in its entirety and held totally void
and unenforceable, but shall be deemed rewritten and shall remain effective to
the maximum extent permissible within reasonable bounds.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
EMPLOYEE
/s/ William S. Rowland
William S. Rowland
EMPLOYER
By: /s/Daniel E. Marvin, Jr.
Daniel E. Marvin, Jr.
Title: Chairman, President & CEO
First Mid-Illinois Bancshares, Inc.
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AND BONUS AGREEMENT
Employment and bonus agreement ("Agreement") made and entered into this 17{th}
day of December, 1997 by and between First Mid-Illinois Bancshares, Inc.,
("Bancshares") a corporation with its principal place of business located in
Mattoon, Illinois and DANIEL E. MARVIN, JR. ("Employee").
In consideration of the promises and of the mutual covenants and agreements
hereinafter set forth, the parties hereto acknowledge and agree as follows:
ARTICLE ONE
NATURE AND TERM OF EMPLOYMENT
1.01 TERM OF EMPLOYMENT:
The term of such employment shall continue for three (3) years from the current
date. Thereafter, unless employment has been previously terminated, Employee
shall continue his employment with Bancshares on an "at will" basis and this
Agreement shall in its entirety terminate unless extended by mutual agreement.
1.02 DUTIES:
The duties of Employee shall be determined by Bancshares' Board of Directors,
and Employee will adhere to the policies and procedures of Bancshares and will
follow the supervision and direction of the Board in the performance of such
duties. Employee agrees to devote his full working time, attention and energies
to the diligent and satisfactory performance of his duties hereunder. Employee
will not while he is employed by Bancshares engage in any activity which would
have an adverse affect on Bancshares' reputation, goodwill and business
relationship or which would result in economic harm to Bancshares.
ARTICLE TWO
COMPENSATION AND BENEFITS
2.01 BASE SALARY:
During the term of Employee's employment, Bancshares shall pay to Employee an
annual base salary of $170,000, payable in equal biweekly installments as are
customary under Bancshares' payroll practices. Bancshares may review and adjust
Employee's base salary from year to year but during term of the Employee's
employment, Bancshares may not decrease the Employee's aforementioned base
salary.
2.02 INCENTIVE COMPENSATIONPLAN:
During the term of Employee's employment hereunder, the Employee shall be a
participant in Bancshares' Incentive Compensation Plan for calendar year 1998,
and thereafter, Employee's bonus shall be paid strictly in accordance with the
Plan. Pursuant to the Plan, Employee will have an opportunity to receive
incentive compensation of a maximum of 35% of Employee's base salary.
2.03 DEFERRED COMPENSATION PLAN:
During the term of the Employee's employment hereunder, the Employee shall be
eligible to participate in the Company's Deferred Compensation Plan under terms
and conditions of the Plan.
2.04 COMPANY STOCK OPTION PLAN:
During the term of Employee's employment hereunder, the Employee shall be
eligible to participate in the Company's Stock Option Plan. Actual stock option
awards shall be made in accordance with the approved Plan.
2.05 VACATION:
Employee shall be entitled to four (4) weeks of paid vacation each year during
the term of this Agreement.
2.06 HEALTH BENEFITS:
Bancshares offers a health and major medical insurance plan and will pay the
cost of Employee's coverage. Said insurance plan includes an option for coverage
of Employee's dependents. The cost of coverage for any and all dependents shall
be the sole responsibility of Employee.
2.07 OTHER BENEFITS:
During the term of the contract, Bancshares shall provide the following
additional benefits to Employee subject to any and all tax or 1099 consequences:
(1) Use of Company-owned or leased vehicle for professional and personal use.
(2) An amount equal to the annual dues for a Class "A" membership at the
Mattoon Golf & Country Club.
(3) Use of a cellular phone for work-related calls and calls associated with
Internet connection for Employee's home.
(4) WITHHOLDING: All salary, bonus and other payments described in this
Agreement shall be subject to withholding for federal, state or local taxes,
amounts withheld under applicable benefit policies or programs, and any other
amounts that may be required to be withheld by law, judicial order or otherwise.
ARTICLE THREE
CONFIDENTIAL INFORMATION
3.01 DEFINITION OF CONFIDENTIAL INFORMATION:
For the purposes of this Agreement, the term "Confidential Information" shall
mean, but shall not be limited to, any technical or non-technical data,
formulae, compilations, programs, devices, methods, techniques, procedures,
manuals, financial data, business plans, lists of actual or potential customers,
lists of employees, and any information regarding the Employer's products,
marketing or database, or that of any affiliate of Employer, which is not
generally known to the public. The Employer and Employee acknowledge and agree
that such Confidential Information is extremely valuable to the Employer and may
constitute trade secret information under applicable law. In the event that any
part of the Confidential Information becomes generally known to the public
through legitimate origins (other than by the breach of this Agreement by
Employee or by other misappropriation of the Confidential Information), that
part of the Confidential Information shall no longer be deemed Confidential
Information for the purposes of this Agreement, but Employee shall continue to
be bound by the terms of this Agreement as to all other Confidential
Information.
3.02 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION:
Except as required in the faithful performance of Employee's duties hereunder
(or as required by law), Employee will not during, or after termination of,
Employee's employment by the Employer, in any form or manner, directly or
indirectly, divulge, disclose or communicate to any person, entity, firm,
corporation or any other third party, or utilize for Employee's personal benefit
or for the benefit of any competitor of the Employer, any Confidential
Information.
3.03 DELIVERY UPON TERMINATION:
Upon termination of Employee's employment with the Employer for any reason,
Employee shall promptly deliver to the Employer all correspondence, files,
manuals, letters, notes, notebooks, reports, programs, plans, proposals,
financial documents, and any other documents or data concerning the Employer's
customers, database, business plan, marketing strategies, or processes and/or
which contains Confidential Information, together with all other property of the
Employer or any affiliate in Employee's possession, custody or control.
ARTICLE FOUR
NONCOMPETE AND NONSOLICITATION COVENANTS
4.01 COVENANT NOT TO COMPETE:
For a period of two years after termination of Employee's employment for any
reason, Employee will not, on behalf of himself or on behalf of another person,
corporation, partnership or entity, solicit for sale, represent, and/or sell
Competing Products with the Counties of Coles, Moultrie, Douglas, Cumberland,
Effingham and Champaign, Illinois, to any person or entity who or which was
Employee's customer during the last twelve (12) months of Employee's employment
and with whom Employee dealt on behalf of Employer. "Competing Products" as
used in this Article means products or services which are similar to, compete
with, or can be used for the same purposes as products or services sold or
offered for sale by Employer or which were in development by Employer by
Employer within the last twelve (12) months of Employee's employment.
4.02 COVENANT NOT TO SOLICIT EMPLOYEES:
For a period of two (2) years following termination of his employment with the
Employer, Employee will not, for any reason, employ, solicit or endeavor to
entice away from the Employer (whether for his own benefit or on behalf of
another person or entity) any employees of the Employer who have had access to
confidential information to work for any competitor of the Employer, nor will
Employee otherwise attempt to interfere (to the Employer's detriment) in the
relationship between the Employer and any such employees.
ARTICLE FIVE
TERMINATION
5.01 TERMINATION OF EMPLOYEE:
The Employer shall have the right to terminate Employee's employment at any time
at will for any reason upon ten (10) days prior written notice to Employee. If
Employee's employment is terminated for any reason other than cause, the
Employer shall continue to pay to Employee his monthly base salary for a total
of twelve (12) months.
5.02 TERMINATION OF EMPLOYEE DUE TO CAUSE:
The Employer may terminate the Employee at any time for cause as set forth in
Bancshares' Employee Handbook, a copy of which is attached hereto as "Exhibit
C". In the event of termination for cause, no further salary or benefits will
be paid to Employee.
5.03 TERMINATION DUE TO MERGER OR ACQUISITION:
If Employee's employment is terminated as a result of merger or acquisition of
Employer or Bancshares, and the Employee is not continued at same salary and
responsibility level, then Employer shall pay to Employee the greater of: (I)
two years' base salary; (ii) base salary for the balance of the initial three
year employment term.
5.04 TERMINATION BY EMPLOYEE:
Subject to the provisions of Article Four above, Employee may terminate his
employment with the Employer prior to the end of the Employment Term. If
Employee's employment is so terminated, the Employer shall be obligated to
continue to pay to Employee only his then current salary and other benefits
accrued up to and including the date on which Employee's employment is so
terminated. Employer shall have no further liability or obligation to Employee.
5.05 CHANGE IN EMPLOYMENT STATUS:
Subject to the provisions of Article Four - Noncompete and Nonsolicitation
Covenants above and only upon mutual agreement of Employer and Employee,
Employee's employment status may be changed at any time to reflect partial or
full retirement. Upon full retirement, the provisions of Article One - Nature
and Term of Employment and Article Two - Compensation and Benefit will be null
and void. Upon partial retirement, the terms of this contract will be reduced
to one year and the terms of Article One and Article Two renegotiated.
ARTICLE SIX
MISCELLANEOUS
6.01 ASSIGNMENT:
Employee and Employer acknowledge and agree that the covenants, terms and
provisions contained in this Agreement constitute a personal employment contract
and the rights and obligations of the parties thereunder cannot be transferred,
sold, assigned, pledged or hypothecated, excepting that the rights and
obligations of the Employer under this Agreement may be assigned or transferred
pursuant to a sale of the business, merger, consolidation, share exchange, sale
of substantially all of the Employer's assets, or other reorganization described
in Section 368 of the Internal Revenue Code, or through liquidation, dissolution
or otherwise, whether or not the Employer is the continuing entity, provided
that the assignee, or transferee is the successor to all or substantially all of
the assets of the Employer and such assignee or transferee assumes the rights
and duties of the Employer, if any, as contained in this Agreement, either
contractually or as a matter of law.
6.02 ENTIRE AGREEMENT:
This Agreement contains the entire agreement between the parties with respect to
the subject matter hereof and may not be modified except in writing by the
parties hereto. Furthermore, the parties hereto specifically agree that all
prior agreements, whether written or oral, relating to Employee's employment by
the Employer shall be of no further force or effect from and after the date
hereof.
6.03 SEVERABILITY:
If any phrase clause or provision of this Agreement is declared invalid or
unenforceable by a court of competent jurisdiction, such phrase, clause or
provision shall be deemed severed from this Agreement, but will not affect any
other provisions of this Agreement, which shall otherwise remain in full force
and effect. If any restriction or limitation in this Agreement is deemed to be
unreasonable, onerous and unduly restrictive by a court of competent
jurisdiction, it shall not be stricken, in its entirety and held totally void
and unenforceable, but shall be deemed rewritten and shall remain effective to
the maximum extent permissible within reasonable bounds.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
EMPLOYEE
/s/ Daniel E. Marvin, Jr.
Daniel E. Marvin, Jr.
EMPLOYER
By: /s/ Christie Burich
Christie Burich
Title: Secretary of the Board
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AND BONUS AGREEMENT
Employment and bonus agreement ("Agreement") made and entered into this 17{th}
day of December, 1997 by and between First Mid-Illinois Bancshares, Inc.,
("Bancshares") a corporation with its principal place of business located in
Mattoon, Illinois and JOHN M. REMSEN, JR. ("Employee").
In consideration of the promises and of the mutual covenants and agreements
hereinafter set forth, the parties hereto acknowledge and agree as follows:
ARTICLE ONE
NATURE AND TERM OF EMPLOYMENT
1.01 TERM OF EMPLOYMENT:
The term of such employment shall continue for three (3) years from the current
date. Thereafter, unless employment has been previously terminated, Employee
shall continue his employment with Bancshares on an "at will" basis and this
Agreement shall in its entirety terminate unless extended by mutual agreement.
1.02 DUTIES:
The duties of Employee shall be determined by Bancshares' Board of Directors,
and Employee will adhere to the policies and procedures of Bancshares and will
follow the supervision and direction of the Board in the performance of such
duties. Employee agrees to devote his full working time, attention and energies
to the diligent and satisfactory performance of his duties hereunder. Employee
will not while he is employed by Bancshares engage in any activity which would
have an adverse affect on Bancshares' reputation, goodwill and business
relationship or which would result in economic harm to Bancshares.
ARTICLE TWO
COMPENSATION AND BENEFITS
2.01 BASE SALARY:
During the term of Employee's employment, Bancshares shall pay to Employee an
annual base salary of $132,000, payable in equal biweekly installments as are
customary under Bancshares' payroll practices. Bancshares may review and adjust
Employee's base salary from year to year but during term of the Employee's
employment, Bancshares may not decrease the Employee's aforementioned base
salary.
2.02 INCENTIVE COMPENSATION PLAN:
During the term of Employee's employment hereunder, the Employee shall be a
participant in Bancshares' Incentive Compensation Plan for calendar year 1998,
and thereafter, Employee's bonus shall be paid strictly in accordance with the
Plan. Pursuant to the Plan, Employee will have an opportunity to receive
incentive compensation of a maximum of 35% of Employee's base salary.
2.03 DEFERRED COMPENSATION PLAN:
During the term of the Employee's employment hereunder, the Employee shall be
eligible to participate in the Company's Deferred Compensation Plan under terms
and conditions of the Plan.
2.04 COMPANY STOCK OPTION PLAN:
During the term of Employee's employment hereunder, the Employee shall be
eligible to participate in the Company's Stock Option Plan. Actual stock option
awards shall be made in accordance with the approved Plan.
2.05 VACATION:
Employee shall be entitled to four (4) weeks of paid vacation each year during
the term of this Agreement.
2.06 HEALTH BENEFITS:
Bancshares offers a health and major medical insurance plan and will pay the
cost of Employee's coverage. Said insurance plan includes an option for coverage
of Employee's dependents. The cost of coverage for any and all dependents shall
be the sole responsibility of Employee.
2.07 OTHER BENEFITS:
During the term of the contract, Bancshares shall provide the following
additional benefits to Employee subject to any and all tax or 1099 consequences:
(1) Use of Company-owned or leased vehicle for professional and personal use.
(2) An amount equal to the annual dues for a Class "A" membership at the
Mattoon Golf & Country Club.
(3) Use of a cellular phone for work-related calls and calls associated with
Internet connection for Employee's home.
(4) WITHHOLDING: All salary, bonus and other payments described in this
Agreement shall be subject to withholding for federal, state or local taxes,
amounts withheld under applicable benefit policies or programs, and any other
amounts that may be required to be withheld by law, judicial order or otherwise.
ARTICLE THREE
CONFIDENTIAL INFORMATION
3.01 DEFINITION OF CONFIDENTIAL INFORMATION:
For the purposes of this Agreement, the term "Confidential Information" shall
mean, but shall not be limited to, any technical or non-technical data,
formulae, compilations, programs, devices, methods, techniques, procedures,
manuals, financial data, business plans, lists of actual or potential customers,
lists of employees, and any information regarding the Employer's products,
marketing or database, or that of any affiliate of Employer, which is not
generally known to the public. The Employer and Employee acknowledge and agree
that such Confidential Information is extremely valuable to the Employer and may
constitute trade secret information under applicable law. In the event that any
part of the Confidential Information becomes generally known to the public
through legitimate origins (other than by the breach of this Agreement by
Employee or by other misappropriation of the Confidential Information), that
part of the Confidential Information shall no longer be deemed Confidential
Information for the purposes of this Agreement, but Employee shall continue to
be bound by the terms of this Agreement as to all other Confidential
Information.
3.02 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION:
Except as required in the faithful performance of Employee's duties hereunder
(or as required by law), Employee will not during, or after termination of,
Employee's employment by the Employer, in any form or manner, directly or
indirectly, divulge, disclose or communicate to any person, entity, firm,
corporation or any other third party, or utilize for Employee's personal benefit
or for the benefit of any competitor of the Employer, any Confidential
Information.
3.03 DELIVERY UPON TERMINATION:
Upon termination of Employee's employment with the Employer for any reason,
Employee shall promptly deliver to the Employer all correspondence, files,
manuals, letters, notes, notebooks, reports, programs, plans, proposals,
financial documents, and any other documents or data concerning the Employer's
customers, database, business plan, marketing strategies, or processes and/or
which contains Confidential Information, together with all other property of the
Employer or any affiliate in Employee's possession, custody or control.
ARTICLE FOUR
NONCOMPETE AND NONSOLICITATION COVENANTS
4.01 COVENANT NOT TO COMPETE:
For a period of two years after termination of Employee's employment for any
reason, Employee will not, on behalf of himself or on behalf of another person,
corporation, partnership or entity, solicit for sale, represent, and/or sell
Competing Products with the Counties of Coles, Moultrie, Douglas, Cumberland,
Effingham and Champaign, Illinois, to any person or entity who or which was
Employee's customer during the last twelve (12) months of Employee's employment
and with whom Employee dealt on behalf of Employer. "Competing Products" as used
in this Article means products or services which are similar to, compete with,
or can be used for the same purposes as products or services sold or offered for
sale by Employer or which were in development by Employer by Employer within the
last twelve (12) months of Employee's employment.
4.02 COVENANT NOT TO SOLICIT EMPLOYEES:
For a period of two (2) years following termination of his employment with the
Employer, Employee will not, for any reason, employ, solicit or endeavor to
entice away from the Employer (whether for his own benefit or on behalf of
another person or entity) any employees of the Employer who have had access to
confidential information to work for any competitor of the Employer, nor will
Employee otherwise attempt to interfere (to the Employer's detriment) in the
relationship between the Employer and any such employees.
ARTICLE FIVE
TERMINATION
5.01 TERMINATION OF EMPLOYEE:
The Employer shall have the right to terminate Employee's employment at any
time at will for any reason upon ten (10) days prior written notice to Employee.
If Employee's employment is terminated for any reason other than cause, the
Employer shall continue to pay to Employee his monthly base salary for a total
of twelve (12) months.
5.02 TERMINATION OF EMPLOYEE DUE TO CAUSE:
The Employer may terminate the Employee at any time for cause as set forth in
Bancshares' Employee Handbook, a copy of which is attached hereto as "Exhibit
C". In the event of termination for cause, no further salary or benefits will
be paid to Employee.
5.03 TERMINATION DUE TO MERGER OR ACQUISITION:
If Employee's employment is terminated as a result of merger or acquisition of
Employer or Bancshares, and the Employee is not continued at same salary and
responsibility level, then Employer shall pay to Employee the greater of: (I)
two years' base salary; (ii) base salary for the balance of the initial three
year employment term.
5.04 TERMINATION BY EMPLOYEE:
Subject to the provisions of Article Four above, Employee may terminate his
employment with the Employer prior to the end of the Employment Term. If
Employee's employment is so terminated, the Employer shall be obligated to
continue to pay to Employee only his then current salary and other benefits
accrued up to and including the date on which Employee's employment is so
terminated. Employer shall have no further liability or obligation to Employee.
5.05 CHANGE IN EMPLOYMENT STATUS:
Subject to the provisions of Article Four - Noncompete and Nonsolicitation
Covenants above and only upon mutual agreement of Employer and Employee,
Employee's employment status may be changed at any time to reflect partial or
full retirement. Upon full retirement, the provisions of Article One - Nature
and Term of Employment and Article Two - Compensation and Benefit will be null
and void. Upon partial retirement, the terms of this contract will be reduced to
one year and the terms of Article One and Article Two renegotiated.
ARTICLE SIX
MISCELLANEOUS
6.01 ASSIGNMENT:
Employee and Employer acknowledge and agree that the covenants, terms and
provisions contained in this Agreement constitute a personal employment contract
and the rights and obligations of the parties thereunder cannot be transferred,
sold, assigned, pledged or hypothecated, excepting that the rights and
obligations of the Employer under this Agreement may be assigned or transferred
pursuant to a sale of the business, merger, consolidation, share exchange, sale
of substantially all of the Employer's assets, or other reorganization described
in Section 368 of the Internal Revenue Code, or through liquidation, dissolution
or otherwise, whether or not the Employer is the continuing entity, provided
that the assignee, or transferee is the successor to all or substantially all of
the assets of the Employer and such assignee or transferee assumes the rights
and duties of the Employer, if any, as contained in this Agreement, either
contractually or as a matter of law.
6.02 ENTIRE AGREEMENT:
This Agreement contains the entire agreement between the parties with respect to
the subject matter hereof and may not be modified except in writing by the
parties hereto. Furthermore, the parties hereto specifically agree that all
prior agreements, whether written or oral, relating to Employee's employment by
the Employer shall be of no further force or effect from and after the date
hereof.
6.03 SEVERABILITY:
If any phrase clause or provision of this Agreement is declared invalid or
unenforceable by a court of competent jurisdiction, such phrase, clause or
provision shall be deemed severed from this Agreement, but will not affect any
other provisions of this Agreement, which shall otherwise remain in full force
and effect. If any restriction or limitation in this Agreement is deemed to be
unreasonable, onerous and unduly restrictive by a court of competent
jurisdiction, it shall not be stricken, in its entirety and held totally void
and unenforceable, but shall be deemed rewritten and shall remain effective to
the maximum extent permissible within reasonable bounds.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
EMPLOYEE
/s/ John M. Remsen, Jr.
John M. Remsen, Jr.
EMPLOYER
By: /s/ Daniel E. Marvin, Jr.
Daniel E. Marvin, Jr.
Title: Chairman, President & CEO
First Mid-Illinois Bancshares, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
First Mid- Illinois Bancshares, Inc.:
RE: Registration Statements
Registration No. 33-84404 on Form S-3
Registration No. 33-64061 on Form S-8
Registration No. 33-64139 on Form S-8
We consent to incorporation by reference in the subject Registration Statements
on Forms S-3 and S-8 of First Mid-Illinois Bancshares, Inc. of our report dated
January 23, 1998, relating to the consolidated balance sheets of First Mid-
Illinois Bancshares, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1997, which report appears in the December 31, 1997 annual report on Form 10-K
of First Mid-Illinois Bancshares, Inc.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
March 25, 1998
<PAGE>
FIRST MID-ILLINOIS BANCSHARES, INC.
April 15, 1998
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of First Mid-Illinois
Bancshares, Inc., I cordially invite you to attend the Annual Meeting of
Stockholders of First Mid-Illinois Bancshares, Inc. to be held at 11:00 a.m. on
May 20, 1998, at the Ramada Inn located at 300 Broadway Avenue, Mattoon,
Illinois. The accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement discuss the business to be conducted at the meeting. We have also
enclosed a copy of the Company's 1997 Annual Report to Stockholders. At the
meeting we shall report on Company operations and the outlook for the year
ahead.
Your Board of Directors has nominated three persons to serve as Class III
directors. Each of the nominees are incumbent directors. The Board also
recommends that you approve the adoption of a Stock Incentive Plan, as set forth
in the accompanying Proxy Statement. In addition, the Company's management has
selected and recommends that you ratify the selection of KPMG Peat Marwick LLP
to continue as the Company's independent public accountants for the year ending
December 31, 1998.
We recommend that you vote your shares for the director nominees and in favor of
the proposals.
I encourage you to attend the meeting in person. WHETHER OR NOT YOU PLAN TO
ATTEND, HOWEVER, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT
IN THE ACCOMPANYING POSTPAID RETURN ENVELOPE AS PROMPTLY AS POSSIBLE. This will
ensure that your shares are represented at the meeting.
If you have any questions concerning these matters, please do not hesitate to
contact me at (217) 258-0493. We look forward with pleasure to seeing and
visiting with you at the meeting.
Very truly yours,
FIRST MID-ILLINOIS BANCSHARES, INC.
Daniel E. Marvin, Jr.
CHAIRMAN
<PAGE>
FIRST MID-ILLINOIS BANCSHARES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 20, 1998
FIRST MID-ILLINOIS BANCSHARES, INC.
1515 CHARLESTON AVENUE
P.O. BOX 499
MATTOON, ILLINOIS 61938
(217) 258-0493
To the stockholders of FIRST MID-ILLINOIS BANCSHARES, INC.
The Annual Meeting of the Stockholders of First Mid-Illinois Bancshares, Inc., a
Delaware corporation (the "Company"), will be held at the RAMADA INN, 300
BROADWAY AVENUE, EAST IN ROOMS A, B AND C, Mattoon, Illinois, on Wednesday, May
20, 1998, at 11:00 a.m., local time, for the following purposes:
1. to elect three Class III directors for a term of three years.
2. to approve the adoption of the First Mid-Illinois Bancshares, Inc. 1997
Stock Incentive Plan.
3. to approve the appointment of KPMG Peat Marwick LLP as independent public
accountants for the Company for the fiscal year ending December 31, 1998.
4. to transact such other business as may properly be brought before the
meeting and any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on April 1, 1998, as the
record date for the determination of stockholders entitled to notice of, and to
vote at, the meeting.
By order of the Board of Directors
Daniel E. Marvin, Jr.
Chairman
Mattoon, Illinois
April 15, 1998
<PAGE>
FIRST MID-ILLINOIS BANCSHARES, INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of First Mid-Illinois Bancshares, Inc. (the "Company") of
proxies to be voted at the Annual Meeting of Stockholders to be held at the
RAMADA INN, 300 BROADWAY AVENUE, EAST IN ROOMS A, B AND C, Mattoon, Illinois, on
Wednesday, May 20, 1998, at 11:00 a.m., local time, and at any adjournments or
postponements thereof.
The Board of Directors would like to have all stockholders represented at the
meeting. Please sign and return your proxy card in the enclosed self-addressed,
stamped envelope. You have the power to revoke your proxy at any time before it
is voted, and the giving of a proxy will not affect your right to vote in person
if you attend the meeting.
The mailing address of the Company's principal executive offices is 1515
Charleston Avenue, P.O. Box 499, Mattoon, Illinois 61938. This Proxy Statement
and the accompanying proxy card are being mailed to stockholders on or about
April 15, 1998. The 1997 Annual Report of the Company, which includes
consolidated financial statements of the Company, is enclosed.
The Company is a diversified financial services company which serves the
financial needs of east central Illinois. It is the parent company of First Mid-
Illinois Bank & Trust, N.A. (the "Bank"), a regional banking entity which has
locations in Mattoon, Altamont, Arcola, Effingham, Charleston, Sullivan,
Tuscola, Urbana and Neoga, Illinois. Mid-Illinois Data Services, Inc., a data
processing company ("MIDS"), is also a wholly owned nonbanking subsidiary of the
Company. The Bank and MIDS are sometimes referred to as the "Subsidiaries."
Only holders of record of the Company's Common Stock, par value $4.00 per share
(the "Common Stock"), at the close of business on April 1, 1998 will be entitled
to vote at the annual meeting or any adjournments or postponements of such
meeting. On April 1, 1998, the Company had approximately 1,978,400 shares of
Common Stock, and 620 shares of Preferred Stock, no par value (the "Preferred
Stock"), issued and outstanding. In the election of directors, and for all other
matters to be voted upon at the annual meeting, each issued and outstanding
share of Common Stock is entitled to one vote. Stockholders voting FOR the
election of directors on the enclosed proxy will be deemed to have given their
proxy to vote for the election of all directors except as otherwise noted on the
proxy. Holders of the Preferred Stock are not entitled to vote their Preferred
Stock at the annual meeting. All shares of Common Stock represented at the
annual meeting by properly executed proxies received prior to or at the annual
meeting, and not revoked, will be voted at the meeting in accordance with the
instructions thereon. If no instructions are indicated, properly executed
proxies will be voted for the nominees and for adoption of the proposals set
forth in this Proxy Statement.
A majority of the shares of the Common Stock, present in person or represented
by proxy, shall constitute a quorum for purposes of the annual meeting.
Abstentions and broker non-votes will be counted for purposes of determining a
quorum. Directors shall be elected by a plurality of the votes present in person
or represented by proxy. In all other matters, the affirmative vote of the
majority of shares present in person or represented by proxy at the annual
meeting and entitled to vote on the subject matter shall be required to
constitute stockholder approval. Abstentions will be treated as votes against a
proposal and broker non-votes will have no effect on the vote.
ELECTION OF DIRECTORS
At the Annual Meeting of the Stockholders to be held on May 20, 1998, the
stockholders will be entitled to elect three (3) Class III directors for a term
expiring in 2001. The directors of the Company are divided into three classes
having staggered terms of three years. Each of the nominees for election as
Class III directors are incumbent directors. The Company has no knowledge that
any of the nominees will refuse or be unable to serve, but if any of the
nominees becomes unavailable for election, the holders of the proxies reserve
the right to substitute another person of their choice as a nominee when voting
at the meeting. Set forth below is information, as of April 1, 1998, concerning
the nominees for election and for the other persons whose terms of office will
continue after the meeting, including age, year first elected a director of the
Company and business experience during the previous five years of each. The
three nominees, if elected at the annual meeting, will serve as Class III
directors for three year terms expiring in 2001.
NOMINEES
Position with the Company and
Name Director the Subsidiaries and Occupation
(AGE) SINCE FOR THE LAST FIVE YEARS
CLASS III
(TERM EXPIRES 2001)
Charles A. Adams 1984 Director of the Bank (since 1989), of
(Age 56) MIDS (since 1987) and of the Company;
President, Howell Paving, Inc.
Daniel E. Marvin, Jr. 1982 Chairman, President, Chief Executive
(Age 59) Officer and Director of the Company;
Director (since 1980), Chairman (since
1983), President and Chief Executive
Officer (1983-1997) of the Bank;
Director of MIDS (1987-1992).
Ray Anthony Sparks 1994 Director of the Bank (since 1997) and
(Age 41) of the Company; Director of MIDS (since
1996); former President of Elasco
Agency Sales, Inc. and Electrical
Laboratories and Sales Corporation;
private investor.
CONTINUING DIRECTORS
CLASS I
(TERM EXPIRES 1999)
Kenneth R. Diepholz 1990 Director of the Bank (since 1984) and
(Age 59) of the Company; President, Diepholz
Chevrolet, Oldsmobile, Cadillac and
Geo; Owner, D-Co Coin Laundry and
Diepholz Rentals.
Gary W. Melvin 1990 Director of the Bank (since 1984) and
(Age 48) of the Company; Director of MIDS (since
1987); Co-Owner, Rural King Stores.
CLASS II
(TERM EXPIRES 2000)
Richard Anthony Lumpkin 1982 Director of the Bank (since 1966) and
(Age 63) of the Company; former Chairman of the
Board of Consolidated Communications
Inc. (until 1997), Director Ameren CIPS
(since 1995); Vice Chairman, McCloud
USA, Inc. (since 1997); Chairman,
Illinois Consolidated Telephone Company
(since 1997).
William G. Roley 1985 Director of the Bank (since 1992) and
(Age 68) of the Company; retired, former owner
of Roley Real Estate.
William S. Rowland 1991 Executive Vice President (since 1997),
(Age 51) Treasurer and Chief Financial Officer
(since 1989) and Director of the
Company; Director of MIDS (since 1989);
Executive Vice President of the Bank
(since 1989).
All of the Company's directors will hold office for the terms indicated, or
until their respective successors are duly elected and qualified. There are no
arrangements or understandings between any of the directors, executive officers
or any other person pursuant to which any of the Company's directors or
executive officers have been selected for their respective positions.
Directors of the Company received a $1,800 quarterly retainer for serving on the
Board of Directors in 1997. Directors who are not employees of the Company also
received options to purchase 500 shares of the Company's Common Stock at $23.51
per share for their service in 1997, and received options to purchase 500 shares
of common stock at $33.73 per share for their service in 1998. Such options
have terms of ten years and became exercisable on their respective date of
grant. Additionally, the Company provides retirement pension benefits to non-
employee directors who have attained the age of 70 and who have served as a
director for a minimum of ten years upon retirement. The pension is equal to
75% of the compensation received by the director from the Company in the year
prior to retirement. Directors who are not employees of the Company also
receive health insurance.
BOARD COMMITTEES AND MEETINGS
The Board of Directors of the Company has established an audit committee and a
compensation committee. These committees are composed entirely of outside
directors. The Board has also created other Company-wide committees composed of
officers of the Company and the Subsidiaries.
Members of the audit committee are Messrs. Adams, Diepholz, Lumpkin, Melvin,
Roley and Sparks. The audit committee reports to the Board of Directors and has
the responsibility to review and approve internal control procedures, accounting
practices and reporting activities of the Subsidiaries. The committee also has
the responsibility for establishing and maintaining communications between the
Board and the independent auditors and regulatory agencies. The audit committee
reviews with the independent auditors the scope of their examinations, with
particular emphasis on the areas to which either the audit committee or the
auditors believe special attention should be directed. It also reviews the
examination reports of regulatory agencies and reports to the full Board
regarding matters discussed therein. Finally, it oversees the establishment and
maintenance of effective controls over the business operations of the
Subsidiaries. The Audit Committee met four times in 1997.
The members of the compensation committee are Messrs. Adams, Diepholz, Lumpkin,
Melvin, Roley and Sparks. The compensation committee reports to the Board of
Directors and has responsibility for all matters related to compensation of
executive officers of the Company, including review and approval of base
salaries, conducting a review of salaries of executive officers compared to
other financial services holding companies in the region, fringe benefits,
including modification of the retirement plan, and incentive compensation. The
compensation committee met two times in 1997.
A total of eleven regularly scheduled and special meetings were held by the
Board of Directors of the Company during 1997. During 1997, all directors
attended at least 75 percent of the meetings of the Board and the committees on
which they served.
TRANSACTIONS WITH MANAGEMENT
Directors and officers of the Company and the Subsidiaries and their associates,
were customers of and had transactions with the Company and the Subsidiaries
during 1997. Additional transactions may be expected to take place in the
future. All outstanding loans, commitments to loan, transactions in repurchase
agreements and certificates of deposit and depository relationships, in the
opinion of management, were made in the ordinary course of business, on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time or comparable transactions with other persons and did not
involve more than the normal risk of collectibility or present other unfavorable
features.
EXECUTIVE COMPENSATION
The following table shows the compensation earned for the last three fiscal
years by the Chief Executive Officer and those executive officers of the Company
and the Subsidiaries whose 1997 salary and bonus exceeded $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
(a) (b) (c) (D) (G) (H)
Fiscal SECURITIES
Year UNDERLYING ALL OTHER
Name and Ended OPTIONS/SARS(#) COMPENSATION
Principal Position December 31st Salary($)<F1> BONUS ($) ($)
<S> <C> <C> <C> <C> <C>
Daniel E. Marvin, Jr., 1997 $170,338 $45,608 7,500 $27,093<F2>
President & 1996 170,338 59,848 --- 26,390<F2>
Chief Executive Officer 1995 164,000 48,163 --- 26,001<F2>
William S. Rowland, Executive 1997 $110,000 $21,450 4,000 $13,912<F3>
Vice President, Treasurer 1996 105,338 23,570 --- 13,517<F3>
and Chief Financial Officer 1995 101,000 21,651 --- 12,756<F3>
Stanley E. Gilliland, Vice 1997 $96,000 $15,264 2,000 $6,686<F4>
President 1996 91,338 15,435 --- 6,426<F4>
1995 86,000 15,738 --- 5,917<F4>
Jack R. Kuczynski, Vice 1997 $98,045 $16,569 1,000 $6,448<F4>
President 1996 51,625 9,419 --- ---
1995 --- --- --- ---
<FN>
<F1> Includes deferred amounts.
<F2> Represents the Company's contributions to its retirement plan for 1997, 1996 and 1995 of $13,812, $13,109
and $12,720, respectively, and premium payments for an insurance policy purchased to fund a supplemental retirement
and death benefit for Mr. Marvin in the amount of $13,281 for each year.
<F3> Represents the Company's contributions to its retirement plan for 1997, 1996 and 1995 of $8,014, $7,619 and
$6,876, respectively, and an annual premium payment for an insurance policy purchased to fund a supplemental
retirement and death benefit for Mr. Rowland in the amount of $5,898 in 1997 and 1996 and $5,880 for 1995.
<F4> Represents the Company's contributions to its retirement plan.
</FN>
</TABLE>
STOCK OPTION INFORMATION
The following table sets forth certain information concerning the number and
value of stock options granted in the last fiscal year to the individuals named
in the Summary Compensation Table:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Potential realizable value
at assumed annual rates of
stock price appreciation
for option term
(a) (b) (c) (d) (e) (f) (g)
% of Total
OPTIONS Options Granted
GRANTED to Employees in Exercise or Base Expiration
NAME (#)<F1> Fiscal Year Price ($/Sh) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Daniel E. Marvin, Jr. 7,500 38% $23.51 10/21/07 $110,888 $281,025
2,500 22% 33.73 12/10/07 53,025 134,400
William S. Rowland 4,000 21% $23.51 10/21/07 $59,140 $149,880
2,000 17% 33.73 12/10/07 42,420 107,520
Stanley E. Gilliland 2,000 10% $23.51 10/21/07 $29,570 $74,940
1,000 9% 33.73 12/10/07 21,210 53,760
Jack R. Kuczynski 1,000 5% $23.51 10/21/07 $14,785 $37,470
1,000 9% 33.73 12/10/07 21,210 53,760
<FN>
<F1> Options become exercisable in four equal annual portions beginning one year from the date of grant. Options with
an exercise price of $23.51 were granted on October 21, 1997 as part of the respective officer's compensation for
service to the Company during the 1997 fiscal year. Options with an exercise price of $33.73 were granted on December
10, 1997 as part of the respective officer's 1998 compensation.
</FN>
</TABLE>
The following table sets forth certain information concerning the number and
value of stock options at December 31, 1997 held by the named executive
officers. No stock options were exercised during 1997 by such persons.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
Shares Number of Securities
Acquired Underlying Unexercised VALUE OF UNEXERCISED
on Value Options/SARs at FY-End IN-
Name Exercise Realized (#)(d) THE-MONEY
(a) (#)(b) ($)(c) EXERCISABLE UNEXERCISABLE OPTIONS/SARS
AT FY-END ($)(E)
EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Daniel E. Marvin, Jr. --- $--- --- 10,000 $--- $98,300
William S. Rowland --- $--- --- 6,000 $--- $53,900
Stanley E. Gilliland --- $--- --- 3,000 $--- $26,950
Jack R. Kuczynski --- $--- --- 2,000 $--- $14,580
</TABLE>
EMPLOYMENT AGREEMENTS
In December, 1997, the Company entered into employment agreements with Daniel E.
Marvin, Jr. and William S. Rowland. The employment agreements provide for an
initial base salary, which may be increased but not decreased, and a bonus of up
to 35% of base salary for Mr. Marvin and 25% for Mr. Rowland. Each agreement has
an initial term of three years, which may be extended upon mutual agreement. In
the event of termination of the respective officer's employment by the Company
without cause, the Company will be obligated to pay to such officer an amount
equal to one year's salary. In the event such person's employment discontinues
following a change in control of the Company, the successor to the Company is
obligated to make a lump sum payment to such officer in amount equal to the
greater of two years' base salary or the aggregate base salary the officer would
have received for the balance of the three year term of the agreement. The
employment agreements include a covenant which limits the ability of each
officer to compete with the Bank for a period of two years following the
termination of his employment. The Company has also entered into a similar
agreement with John M. Remsen, Jr., who became the Bank's President in August,
1997.
The Compensation Committee has furnished the following report on executive
compensation. The incorporation by reference of this Proxy Statement into any
document filed with the Securities and Exchange Commission by the Company shall
not be deemed to include such report unless such report is specifically stated
to be incorporated by reference into such document.
COMPENSATION COMMITTEE REPORT
As members of the Compensation Committee, it is our duty to evaluate the
performance of management, review total management compensation levels and
consider management succession and other related matters. The Committee reviews
and approves in detail all aspects of compensation for the nine highest paid
officers within the Company and uses state, regional and national salary studies
to ascertain existing market conditions for personnel. No member of the
Committee is a former or current officer or employee of the Company or any of
the Subsidiaries.
The compensation philosophy of the Company is that a portion of the annual
compensation of each officer relates to and must be contingent upon the
performance of the Company, as well as the individual contribution of each
officer. As a result, a portion of each executive officer's annual compensation
is based upon the officer's performance, the performance of the operating unit
for which the officer has primary responsibility and the performance of the
Company as a whole. In 1993, the formulas for measuring performance and awarding
bonuses were refined and improved so as to more objectively link financial and
individual performance with bonus amounts.
During 1997, the Company's net income amounted to $4,726,000, a $560,000 (13.4%)
improvement from 1996's level. In addition, the Company's market share
increased significantly and various other improvements were made in the
Company's operating and administrative functions. Accordingly, Messrs. Marvin,
Rowland, Gilliland, and Kuczynski were awarded incentive bonuses of $45,608,
$21,450, $15,264 and $16,569, respectively. The relationships between the base
salaries and incentive compensation of Messrs. Marvin, Rowland, Gilliland and
Kuczynski for 1997, 1996 and 1995 were as follows:
Incentive Compensation as a % of Base Salary
1997 1996 1995
Mr. Marvin 27% 35% 29%
Mr. Rowland 20% 22% 21%
Mr. Gilliland 16% 17% 18%
Mr. Kuczynski 17% 18% - %
The members of the Compensation Committee are: Charles A. Adams, Kenneth R.
Diepholz, Richard A. Lumpkin, Gary W. Melvin, William G. Roley and Ray Anthony
Sparks
The incorporation by reference of this Proxy Statement into any document filed
with the Securities and Exchange Commission by the Company shall not be deemed
to include the following performance graph unless such graph is specifically
stated to be incorporated by reference into such document.
PERFORMANCE GRAPH
The following line graph compares the cumulative total stockholder return on a
$100 investment in the Company's Common Stock to the cumulative total return of
the S & P 500 Index and the Nasdaq Bank Stock Index for the period December 31,
1992 through December 31, 1997. The S&P 500 Index and the Nasdaq Bank Stock
Index were calculated at the Company's request by Research Data Group, San
Francisco, California.
CUMULATIVE TOTAL RETURN{*}
* Total return assumes reinvestment of dividends
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
First Mid-Illinois Bancshares, Inc. $100 $130 $134 $178 $217 $345
Nasdaq Bank Stocks $100 $114 $114 $169 $223 $377
S&P 500 $100 $110 $112 $153 $189 $252
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the Company's
Common Stock beneficially owned on February 28, 1998 with respect to all persons
known to the Company to be the beneficial owner of more than five percent of the
Company Common Stock, each director and nominee, each executive officer named in
the Summary Compensation Table and all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AND AMOUNT AND NATURE OF PERCENT
NUMBER OF PERSONS IN GROUP BENEFICIAL OWNERSHIP<F1> OF CLASS
<S> <C> <C>
5%
STOCKHOLDERS
Margaret Lumpkin Keon 136,421<F2> 6.8%
16 Miller Avenue Suite 203
Mill Valley, California 94941
Mary Lumpkin Sparks 190,997<F3> 9.6%
2438 Campbell Road, N.W.
Albuquerque, New Mexico 87104
DIRECTORS
Charles A. Adams 131,635<F4> 6.4%
Kenneth R. Diepholz 31,961<F5> 1.6%
Richard Anthony Lumpkin 404,864<F6> 19.8%
Daniel E. Marvin, Jr. 31,142<F7> 1.6%
Gary W. Melvin 91,605<F8> 4.5%
William G. Roley 40,889<F9> 2.1%
William S. Rowland 9,942<F10> *
Ray Anthony Sparks 39,695<F11> 2.0%
OTHER NAMED EXECUTIVE OFFICERS
Stanley E. Gilliland 7,407<F12> *
Jack R. Kuczynski 3,034 *
All directors and
executive officers
as a group (13 persons) 793,999<F13> 35.8%
_____________
* Less than one percent.
<FN>
<F1> The information contained in this column is based upon information
furnished to the Company by the persons named above and the members of the
designated group. Amounts include 1,000 shares obtainable by each of Messrs.
Adams, Diepholz, Lumpkin, Melvin, Roley and Sparks through the exercise of
options which are currently exercisable or which will become exercisable within
60 days of the date of the information provided. The nature of beneficial
ownership for shares shown in this column is sole voting and investment power,
except as set forth in the footnotes below.
<F2> The above amount includes 20,210 shares obtainable through the conversion
of Preferred Stock held by Ms. Keon and 116,031 shares held under the Margaret
L. Keon Trust, established under Article 5 of the Mary G. Lumpkin Trust dated
January 31, 1984, of which trust Ms. Keon is trustee and beneficiary.
<F3> The above amount includes 20,210 shares obtainable through the conversion
of Preferred Stock and 116,537 shares held under the Mary L. Sparks Trust,
established under Article 5 of the Mary G. Lumpkin Trust dated January 31, 1984,
with respect to which shares Mrs. Sparks has no voting or investment power. The
shares held by this trust are also included in the number of shares reported as
beneficially owned by Mr. Richard A. Lumpkin in this table. The above amount
also includes 1,190 shares held directly by Mrs. Sparks and 53,060 shares held
in trust for the benefit of Richard Anthony Lumpkin's adult children for which
Mrs. Sparks serves as trustee and of which shares Mrs. Sparks disclaims
beneficial ownership.
<F4> The above amount includes 16,018 shares of Common Stock and 80,840 shares
obtainable through the conversion of Preferred Stock held by a corporation over
which Mr. Adams is deemed to control. The above amount also includes 2,056
shares held by Mr. Adams' spouse, over which shares Mr. Adams has no voting and
investment power. The above amount does not include 1,623 shares held by adult
children of Mr. Adams.
<F5> The above amount includes 14,147 shares obtainable through the conversion
of Preferred Stock held by Mr. Diepholz.
<F6> The above amount includes 40,420 shares obtainable through the conversion
of Preferred Stock held by Mr. Lumpkin and by the Richard A. Lumpkin Trust, of
which Mr. Lumpkin is trustee and beneficiary, 54,684 shares held directly by Mr.
Lumpkin and 9,805 shares held by The Lumpkin Foundation, of which Mr. Lumpkin
serves as a director. The above amount also includes 116,537 shares held under
the Richard A. Lumpkin Trust, and further includes 20,210 shares obtainable
through the conversion of Preferred Stock and 116,537 shares held under the Mary
Lee Sparks Trust, of which Mr. Lumpkin is trustee. Each such trust has been
established under Article 5 of the Mary G. Lumpkin Trust dated January 31, 1984.
The above amount also includes 45,671 shares held by McCloud USA, of which Mr.
Lumpkin is Vice Chairman of the Board, and of which shares beneficial ownership
is disclaimed. The above amount does not include 68,080 shares held by adult
children of Mr. Lumpkin and 53,060 shares held in trust for the benefit of Mr.
Lumpkin's adult children of which trust Mr. Lumpkin is not a trustee and of
which shares beneficial ownership is also disclaimed.
<F7> The above amount includes 4,850 shares obtainable through the conversion
of Preferred Stock held by Mr. Marvin. The above amount also includes 3,115
shares held by Mr. Marvin's spouse, over which shares Mr. Marvin has no voting
or investment power and of which Mr. Marvin disclaims beneficial ownership, and
225 shares held by Mr. Marvin's grandchildren, over which Mr. Marvin has shared
voting and investment power.
<F8> The above amount includes 40,420 shares obtainable through the conversion
of Preferred Stock held by Mr. Melvin.
<F9> The above amount includes 4,042 shares obtainable through the conversion
of Preferred Stock held by Mr. Roley. The above amount also includes 4,042
shares obtainable through the conversion of Preferred Stock held by Mr. Roley's
spouse and 13,057 shares held by the Peggy A. Roley Trust, over which Mr. Roley
has no voting or investment power and of which Mr. Roley disclaims beneficial
ownership.
<F10> The above amount includes 4,850 shares obtainable through the conversion
of Preferred Stock held by Mr. Rowland.
<F11> The above amount includes 7,189 shares held by Mr. Sparks' children, over
which Mr. Sparks shares voting and investment power.
<F12> The above amount includes 2,021 shares obtainable through the conversion
of Preferred Stock held by Mr. Gilliland and 963 shares held by Mr. Gilliland
and his spouse, over which Mr. Gilliland has shared voting and investment power.
<F13> Includes an aggregate of 215,842 shares obtainable through conversion of
Preferred Stock.
</FN>
</TABLE>
As of February 28, 1998, the Bank acted as sole or co-fiduciary with respect to
trusts and other fiduciary accounts which own or hold 99,151 shares or 5.0% of
the outstanding Common Stock of the Company, over which the Bank has sole voting
and investment power with respect to 83,051 shares or 4.2% of the outstanding
Common Stock and shared voting and investment power with respect to 16,100
shares or 0.8% of the outstanding Common Stock.
Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's
directors, executive officers and persons who own more than 10% of the Company's
Common Stock file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Such persons are also required to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on
the Company's review of the copies of such forms, the Company is not aware that
any of its directors and executive officers or 10% stockholders failed to comply
with the filing requirements of Section 16(a) during the period commencing
January 1, 1997 through December 31, 1997.
PROPOSAL TO ADOPT STOCK INCENTIVE PLAN
On October 21, 1997, the Board of Directors unanimously adopted resolutions
approving the First Mid-Illinois Bancshares, Inc., 1997 Stock Incentive Plan
(the "Incentive Plan"), to promote equity ownership of the Company by directors
of the Company and selected officers and employees of the Bank, to increase
their proprietary interest in the success of the Company, and to encourage them
to remain in the employ of the Company and the Bank. While the Incentive Plan is
not generally subject to stockholder approval, the Company is submitting the
Incentive Plan to its stockholders for purposes of complying with certain
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
pertaining to incentive stock options, as described below.
ADMINISTRATION
The Incentive Plan is to be administered by the Stock Incentive Plan
Administrative Committee, which will be comprised of at least two non-employee
directors appointed by the Board of Directors (the "Stock Incentive Committee").
The Stock Incentive Committee will have the authority, subject to approval by
the Board of Directors, to select the employees to whom awards may be granted,
to determine the terms of each award, to interpret the provisions of the
Incentive Plan and to make all other determinations for the administration of
the Incentive Plan. The Incentive Plan provides for the grant of "incentive
stock options," as defined under Section 422(b) of the Code, options that do not
so qualify (referred to herein as "nonstatutory options"), restricted stock and
stock appreciation rights ("SARs"), as determined in each individual case by
the Stock Incentive Committee. The Board of Directors has reserved 100,000
shares of Common Stock for issuance under the Incentive Plan, subject to
adjustment for stock splits, stock dividends or similar transactions. In
general, if any award granted under the Incentive Plan expires, terminates, is
forfeited or is cancelled for any reason, the shares of Common Stock allocable
to such award may again be made subject to an award granted under the Incentive
Plan.
AWARDS
Directors of the Company and key policy-making employees of the Bank are
eligible to receive grants under the Incentive Plan. Director options will be
granted at the fair market value of the Common Stock on the date of grant.
Employee awards may be granted subject to a vesting requirement and in any event
will become fully vested upon a merger or change of control of the Company. The
exercise price of incentive stock options granted under the Incentive Plan must
at least equal the fair market value of the Common Stock subject to the option
(determined as provided in the plan) on the date the option is granted. The
exercise price of nonstatutory options and SARs will be determined by the Stock
Incentive Committee.
An incentive stock option granted under the Incentive Plan to an employee owning
more than 10% of the combined voting power of all classes of stock of the
Company must have an exercise price of at least 110% of the then current fair
market value of the shares of Common Stock issuable upon exercise of the option
and may not have an exercise term of more than five years. Incentive stock
options are also subject to the further restriction that the aggregate fair
market value (determined as of the date of grant) of Common Stock as to which
any such incentive stock option first becomes exercisable in any calendar year,
is limited to $100,000. To the extent options covering more than $100,000 worth
of Common Stock first become exercisable in any one calendar year, the excess
will be nonstatutory options. For purposes of determining which, if any, options
have been granted in excess of the $100,000 limit, options will be considered to
become exercisable in the order granted.
Each director and key employee eligible to participate in the Incentive Plan
will be notified by the Stock Incentive Committee. The award agreement will
specify the type of award to be granted, the number of shares of Common Stock
(if any) to which the award relates, the terms and conditions of the award and
the date granted. In the case of an award of options, the award agreement will
also specify the price at which the shares of Common Stock subject to the option
may be purchased, the date(s) on which the option becomes exercisable and
whether the option is an incentive stock option or a nonstatutory option.
The full exercise price for all shares of Common Stock purchased upon the
exercise of options under the Incentive Plan may be paid by cash, personal
check, personal note, award surrender or Common Stock owned at the time of
exercise, as directed by the Stock Incentive Committee. Incentive stock options
granted under the Incentive Plan will remain outstanding and exercisable for ten
years from the date of grant or until the expiration of ninety days (or such
lesser period as the Stock Incentive Committee may determine) from the employees
date of termination of employment with the Company. Nonstatutory options and
SARs granted under the Incentive Plan remain outstanding and exercisable for
such period as the Stock Incentive Committee may determine.
INCOME TAX
With respect to incentive stock options, no taxable income is recognized by the
option holder for income tax purposes at the time of the grant or exercise of an
incentive stock option, although neither is there any income tax deduction
available to the Company as a result of such a grant or exercise. Any gain or
loss recognized by an option holder on the later disposition of shares of Common
Stock acquired pursuant to the exercise of an incentive stock option generally
will be treated as capital gain or loss if such disposition does not occur prior
to one year after the date of exercise of the option, or two years after the
date the option was granted. With respect to nonstatutory stock options,
restricted stock or SARs, no taxable income will result to the recipient of the
awards, nor will the Company be entitled to an income tax deduction. However,
upon the exercise of nonstatutory stock options or SARs, or the lapse of
restrictions on restricted stock, the award holder will generally recognize
ordinary income equal to the difference between the exercise price and the fair
market value of the shares of Common Stock acquired on the date of exercise, and
the Company will be entitled to an income tax deduction in the amount of the
ordinary income recognized by the option holder. In general, any gain or loss
realized by the option holder on the subsequent disposition of such shares will
be a capital gain or loss.
AMENDMENT AND TERMINATION
The Incentive Plan expires ten years after its adoption, unless sooner
terminated by the Board of Directors. The Board has authority to amend the
Incentive Plan in such manner as it deems advisable, except that the Board of
Directors is not permitted, without stockholder approval, to amend the plan in a
manner which would prevent the grant of incentive stock options or increase the
number of shares of Common Stock available.
NEW PLAN BENEFIT TABLE
The following table sets forth certain information concerning the value and
number of Incentive Plan grants which have made with respect to the 1997 and
1998 fiscal years.
<TABLE>
<CAPTION>
NEW PLAN BENEFITS
FIRST MID-ILLINOIS BANCSHARES, INC. 1997 STOCK INCENTIVE PLAN
NAME AND POSITION DOLLAR VALUE ($)<F1> NUMBER OF UNITS
<S> <C> <C>
Daniel E. Marvin, President and
Chief Executive Officer $ --- 10,000
Other Named Executive Officers $ --- 11,000
Non-Executive Director Group $ --- 6,000
Non-Executive Officer and Employee Group $ --- 4,000
<FN>
<F1> All options will be exercisable at a price equal to 100% of the fair market
value of the underlying security on the date of the grant.
</FN>
</TABLE>
REQUIRED AFFIRMATIVE VOTE
The affirmative vote of the holders of a majority of the shares of Common Stock
present in person or by proxy at the annual meeting is required to ratify the
Incentive Plan under the Code.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSED STOCK
INCENTIVE PLAN.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Stockholders will be asked to approve the appointment of KPMG Peat Marwick LLP
as the Company's independent public accountants for the year ending December 31,
1998. A proposal will be presented at the annual meeting to ratify the
appointment of KPMG Peat Marwick LLP. If the appointment of KPMG Peat Marwick
LLP is not ratified, the matter of the appointment of independent public
accountants will be considered by the Board of Directors. Representatives of
KPMG Peat Marwick LLP are expected to be present at the meeting and will be
given the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THIS
APPOINTMENT.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
For inclusion in the Company's Proxy Statement and form of proxy relating to the
1999 Annual Meeting of Stockholders, stockholder proposals must be received by
the Company on or before December 16, 1998 and must otherwise comply with the
Company's bylaws.
GENERAL
Your proxy is solicited by the Board of Directors and the cost of solicitation
will be paid by the Company. In addition to the solicitation of proxies by use
of the mails, officers, directors and regular employees of the Company or the
Subsidiaries, acting on the Company's behalf, may solicit proxies by telephone,
telegraph or personal interview. The Company will, at its expense, upon the
receipt of a request from brokers and other custodians, nominees and
fiduciaries, forward proxy soliciting material to the beneficial owners of
shares held of record by such persons.
OTHER BUSINESS
It is not anticipated that any action will be asked of the stockholders other
than that set forth above, but if other matters properly are brought before the
meeting, the persons named in the proxy will vote in accordance with their best
judgment.
FAILURE TO INDICATE CHOICE
If any stockholder fails to indicate a choice in items (1), (2) or (3) on the
proxy card, the shares of such stockholder shall be voted (FOR) in each
instance.
REPORT ON FORM 10-K
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON REPRESENTING THAT HE OR
SHE WAS A BENEFICIAL OWNER OF THE COMPANY'S COMMON STOCK AS OF THE RECORD DATE
FOR THE MEETING, UPON WRITTEN REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-K. SUCH WRITTEN REQUEST SHOULD BE SENT TO MR. WILLIAM S. ROWLAND, FIRST
MID-ILLINOIS BANCSHARES, INC., 1515 CHARLESTON AVENUE, P.O. BOX 499, MATTOON,
ILLINOIS 61938.
By order of the Board of Directors
Daniel E. Marvin, Jr.
Chairman
Mattoon, Illinois
April 15, 1998
ALL STOCKHOLDERS ARE URGED TO SIGN AND MAIL THEIR PROXIES PROMPTLY
<PAGE>
PROXY CARD
FIRST MID-ILLINOIS BANCSHARES, INC.
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
STOCKHOLDERS -- MAY 20, 1998
The undersigned hereby appoints Stanley E. Gilliland, John M. Remsen, Jr. and
Alfred M. Wooleyhan, Jr., or any of them acting in the absence of the others,
with power of substitution, attorneys and proxies, for and in the name and place
of the undersigned, to vote the number of shares of Common Stock that the
undersigned would be entitled to vote if then personally present at the Annual
Meeting of the Stockholders of First Mid-Illinois Bancshares, Inc., to be held
at the Ramada Inn, 300 Broadway Avenue, East in Rooms A B and C, Mattoon,
Illinois 61938, on Wednesday, May 20, 1998, at 11:00 a.m., local time, or any
adjournments or postponements thereof, upon the matters set forth in the Notice
of Annual Meeting and Proxy Statement (receipt of which is hereby acknowledged)
as designated on the reverse side, and in their discretion, the proxies are
authorized to vote upon such other business as may come before the meeting:
- ------ Check here for address change.
- ------ Check here if you plan to attend the meeting.
New Address:
(Continued and to be signed on reverse side.)
FIRST MID-ILLINOIS BANCSHARES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
Election of Directors:
Charles A. Adams, Daniel E. Marvin, Jr. and Ray Anthony Sparks
To approve the adoption of the First Mid-Illinois, Inc. 1997 Stock
Incentive Plan.
The Board of Directors recommends a vote FOR all proposals.
To ratify the selection of KPMG Peat Marwick LLP as auditors for the
Company for 1998.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATION MADE. IF NO CHOICES
ARE INDICATED, THIS PROXY WILL BE VOTED FOR ALL PROPOSALS.
Dated:--------, 1998
NOTE: Please sign exactly as your name(s) appears. For joint accounts, each
owner should sign. When signing as executor, administrator, attorney, trustee or
guardian, etc., please give your full title.
Signature(s)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 20486
<INT-BEARING-DEPOSITS> 250
<FED-FUNDS-SOLD> 5925
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 116782
<INVESTMENTS-CARRYING> 3020
<INVESTMENTS-MARKET> 3057
<LOANS> 358223
<ALLOWANCE> 2636
<TOTAL-ASSETS> 532978
<DEPOSITS> 457598
<SHORT-TERM> 17780
<LIABILITIES-OTHER> 3595
<LONG-TERM> 6200
0
3100
<COMMON> 7891
<OTHER-SE> 34585
<TOTAL-LIABILITIES-AND-EQUITY> 532978
<INTEREST-LOAN> 30040
<INTEREST-INVEST> 7460
<INTEREST-OTHER> 305
<INTEREST-TOTAL> 37805
<INTEREST-DEPOSIT> 17147
<INTEREST-EXPENSE> 19131
<INTEREST-INCOME-NET> 18674
<LOAN-LOSSES> 700
<SECURITIES-GAINS> (6000)
<EXPENSE-OTHER> 16039
<INCOME-PRETAX> 7356
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4726
<EPS-PRIMARY> 2.30<F1>
<EPS-DILUTED> 2.17<F1>
<YIELD-ACTUAL> 3.96
<LOANS-NON> 1194
<LOANS-PAST> 145
<LOANS-TROUBLED> 346
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2684
<CHARGE-OFFS> 802
<RECOVERIES> 54
<ALLOWANCE-CLOSE> 2636
<ALLOWANCE-DOMESTIC> 2636
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 500
<FN>
<F1> Registrant had a 2-for-1 stock split in the form of a 100%
stock dividend on Mat 22, 1997. Prior Financial Data Schedules
have not been restated.
</FN>
</TABLE>
